Dive Brief:
- The European Commission today approved Tennessee-based International Paper’s proposed acquisition of London-based DS Smith. The commission said IP agreed to divest five plants in Europe, which will “fully address” its concerns about competition in three regions.
- Three of the plants that will be sold are around Normandy, France; one is in Ovar, Portugal; and one is in Bilbao, Spain.
- The acquisition close, which International Paper now says will occur on Jan. 31, is not contingent upon the completion of the divestitures. However, the commission must approve a purchaser for the plants, which will occur in a separate procedure, and an independent trustee will monitor the implementation.
Dive Insight:
Although industry analysts generally had expected this transaction, which was formally announced last April, to sail through regulatory reviews, the European Commission last month raised red flags during its investigation.
Documents that the commission posted in December suggested that IP had agreed to concessions but didn’t specify what they were. The commission pushed its approval deadline from Jan. 10 to today to allow extra time to determine if the measures IP agreed to on Dec. 20 were sufficient.
This type of investigation is standard for large international M&A deals, but the commission only requires divestitures in certain cases where it views the potential for reduced competition. Conversely, no regulators required divestitures last year for Smurfit Kappa to complete its similarly-sized acquisition of WestRock to create Smurfit Westrock.
The commission took issue with the potential for reduced competition in three areas: corrugated sheets in North and West Portugal; heavy-duty corrugated sheets in Northeast Spain; and corrugated cases in Northwest France. It found that after the proposed merger, those local markets would experience “high combined shares” and “high concentration levels,” and that “there would not be enough alternative competitors to exert sufficient competitive pressure on the merged entity.”
“It would have likely resulted in higher costs for businesses relying on boxes for the delivery of their products, and ultimately for consumers buying them,” Teresa Ribera, executive vice president for Clean, Just and Competitive Transition, said in the commission news release.
These areas generally were the ones flagged in an addendum to an IP securities filing from September. It’s from French members of DS Smith’s European Works Council, an entity that represents the company’s European employees.
“While we would have preferred to keep the selected locations as part of our portfolio, these are attractive sites and we are confident we will find a suitable buyer,” International Paper CEO Andrew Silvernail said in a news release.
In October, International Paper’s and DS Smith’s shareholders separately voted to approve the transaction. The companies initially had expected the deal to close in the fourth quarter last year, but they pushed that to this quarter due to ongoing regulatory investigations.
The acquisition is still subject to a court hearing on Jan. 30 ahead of anticipated close on Jan. 31. The companies expect to delist DS Smith shares on Feb. 3 and issue new IP shares later that day.
