International Paper, DS Smith shareholders vote to approve combination

Dive Brief:

International Paper shareholders overwhelmingly approved a proposal on Friday to issue shares for the acquisition of DS Smith, with over 99% voting in favor.
DS Smith shareholders also approved the transaction in a separate vote on Monday.
IP and DS Smith still expect the all-share transaction to close sometime this quarter, according to securities documents filed Friday afternoon.

Dive Insight:

This is the latest example of consolidation in fiber packaging, a space that analysts said has more room for such tie-ups compared with sectors like glass or metal.

Upon the acquisition’s closing, International Paper shareholders will own 65.9% of the stock and DS Smith shareholders will own approximately 34.1%.

The combined company will be called International Paper Co. IP’s new CEO as of May, Andy Silvernail, will be CEO of the new company, and much of IP’s existing leadership team will stay in place. DS Smith CEO Miles Roberts will remain with the company in a consulting capacity for up to two years; he will receive a monthly fee of 125,000 pounds and “an opportunity to earn a synergies success fee of up to £1,000,000,” according to the proxy statement. Up to two DS Smith executives will be added to the board of directors, and most of IP’s leadership structure will remain in place.

The new company headquarters will be in Memphis, Tennessee, IP’s current home base, but the companies have stated an intention to establish a European headquarters in London, DS Smith’s current home base. The company primarily will list on the New York Stock Exchange and secondarily will retain its London Stock Exchange position.

The anticipated costs to achieve “synergy” targets by the end of the first year are approximately $370 million, according to IP’s proxy statement. If certain conditions or approvals are not met, IP could be required to pay DS Smith a deal break fee of up to $221 million.

Analysts generally did not expect the transaction to get pushback from regulators, mostly because the companies’ footprints do not contain much overlap.

International Paper surprised some industry observers by throwing its hat into the ring in March to acquire DS Smith, after Mondi announced in early March it had come to a tentative agreement to purchase the company. A bidding war essentially ensued, with back-and-forth among the entities amid deadlines and extensions for making formal offers.

IP and DS Smith announced an official deal on April 16. IP’s proxy statement lays out the chronology for discussions leading up to that point.

On Feb. 7, Roberts had a phone call with the then-CEO of International Paper, Mark Sutton, to discuss potential commercial opportunities, including a business combination of either just the European operations or the two companies in their entirety. The next day, Mondi and DS Smith announced they were exploring a merger and DS Smith announced publicly that it had received initial informal interest from Mondi; it set a March 7 date for Mondi to make a formal offer.

Throughout February, IP had discussions internally and with DS Smith regarding a potential deal and engaged with its financial adviser, BofA Securities. On Feb. 23, DS Smith sent IP a mutual nondisclosure agreement, which they formalized on Feb. 27. An in-person meeting with both parties’ representatives took place on Feb. 28.

Following DS Smith and Mondi’s tentative agreement announcement on March 7, Sutton reiterated IP’s desire to enter a transaction with DS Smith. Conversations continued through March, including a March 14 call with information about Andrew Silvernail’s appointment as IP’s new CEO, which was announced publicly on March 19. IP provided a non-binding offer letter on March 14, and discussions about details for a formal offer and due diligence took place up until the April 16 official announcement. Mondi consequently announced on April 19 it would end its bid to acquire DS Smith.

If the deal goes through, it will create one of the largest packaging companies in the world. It will rival Smurfit Westrock, which formed earlier this year through another megamerger, between Ireland-based Smurfit Kappa and Georgia-based WestRock.

The new company would span multiple continents. Pro-forma sales are expected to be approximately $28.2 billion annually, with an anticipated 90% of sales coming from corrugated.

“Bringing the two companies together will create a true global leader of sustainable packaging solutions which will drive significant value for our employees, customers and shareholders,” Silvernail said in a statement released Friday.