Today DS Smith offered a deadline extension for Mondi to make a formal offer to acquire the company, just hours before the window was set to close. Also today, International Paper released more details about its recent counterproposal to acquire DS Smith, including the idea of creating a second headquarters.
April 23 is the new deadline for Mondi to either make a formal offer to acquire DS Smith or state it won’t make an offer; the UK Panel on Takeovers and Mergers approved that deadline. That’s the same day as the previously stated deadline for IP to make a formal offer. DS Smith confirmed in a letter to the London Stock Exchange today that it’s continuing discussions with Mondi, although there’s no certainty that Mondi will make a firm offer. It also noted that the deadline could be further extended.
In February, Mondi initially expressed its interest in combining with DS Smith in a deal worth an estimated $6.5 billion. In early March, the two parties confirmed they had arrived at an agreement for a possible all-share offer. The deadline to put forth a formal offer then moved to April 4.
Last week, Tennessee-based International Paper made a counterproposal worth more than $7 billion to acquire DS Smith, sparking speculation of a bidding war. IP today provided an update to its proposal, in which it confirmed “significant progress” in due diligence toward a deal. IP said in a news release that it is “now in a position to provide shareholders with more detail on the type and quantum of synergies it believes would arise from the combination.”
IP suggested that the international deal would strengthen the combined packaging business both in North America and Europe. The company also envisions making Memphis the combined group’s headquarters while establishing a European headquarters in DS Smith’s home base of London.
“Bringing International Paper together with DS Smith is a logical next step in International Paper's strategy to create value,” IP CEO Mark Sutton said in the release. “By combining the strengths of both companies, we believe we can enhance our offering of sustainable packaging solutions for customers in attractive and growing markets."
IP suggested that the combined business could deliver at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the transaction’s completion, and total costs would be $370 million. About one-third of the synergies would be achieved by the end of the first year after deal completion, with 66% and 95% achieved by the end of the second and third years, respectively.
About 92%, or $474 million, of synergies would occur from operations across the combined network of mills, box plants and global supply chain; reducing duplicative corporate and business overhead expenses; and from operational procurement due to the group’s increased scale. IP’s release reiterates that the company has not made a formal offer and there’s no certainty that a transaction will move forward.
IP’s initial proposal surprised some industry analysts, partly because the company is in a state of leadership transition. The acquisition proposal came a week after International Paper announced that Andrew Silvernail would take over the CEO role from Sutton on May 1. Silvernail offered a statement in Thursday’s news release with the proposal update.
"Upon being selected as the next CEO, International Paper engaged me in an advisory role that allowed me to have discussions with Mark and the Board regarding this strategic proposal. I am fully aligned with their views and supportive of the opportunity," he said, adding that the combination would drive profitable growth. “I am highly committed to delivering the expected synergies associated with this opportunity as well as the other profit improvement initiatives in place throughout the Combined Group.”
If either company wins DS Smith’s favor, then such a merger would create another global fiber packaging giant. It would rival the plans for Smurfit WestRock, an in-progress merger between Ireland-based Smurfit Kappa and Georgia-based WestRock worth an estimated $11.2 billion that’s expected to close in July.
