Dive Brief:

• Smurfit Kappa announced Tuesday it reached an agreement to acquire WestRock and aims to close the transaction by Q2 2024. The newly formed Smurfit WestRock could become the world’s largest publicly traded packaging company.
• The deal, which Bloomberg valued at $11.2 billion, would lead to 50.4% ownership by Smurfit Kappa shareholders. For each share they currently own, WestRock shareholders would receive one share of Smurfit WestRock stock (valued at $43.51) plus $5 in cash.
• Smurfit Kappa CEO Tony Smurfit, who would lead the combined company, said during a Tuesday investor call that he does not anticipate antitrust challenges “with the exception of some issues in Mexico.” The transaction agreement allows for divestitures of assets worth up to $750 million in annualized revenue.

Dive Insight:

The proposed transaction, which came as a surprise to many in the packaging industry last week, is set to bring together two major players in the paper sector to create the “go-to” option for customers. 

“Today represents a truly defining moment within the global paper and packaging industry,” said Smurfit during the investor call, describing it as a “unique opportunity.” Smurfit said he began discussing the deal in earnest with WestRock CEO David Sewell in January. He also said that Smurfit WestRock’s earnings potential could be higher than each company’s current performance, given the recent steep decline in packaging demand due to the destocking trend in recent months.

The new company would be incorporated in Ireland and headquartered in Dublin, Smurfit Kappa’s current headquarters; Atlanta, WestRock’s current home, will serve as the headquarters for North and South American operations. Tony Smurfit is expected to lead the combined company, along with Smurfit Kappa CFO Ken Bowles continuing in his current role.

Smurfit said the transaction helps it address a notable “strategic hole” in his current business by expanding into North America, where the company’s presence is limited. The combined company also has the strategic benefit of bolstering current operations in Latin America, where Smurfit Kappa is seen as lacking in paper capacity. Smurfit estimated that WestRock’s assets, which grew in that region through last year’s acquisition of Grupo Gondi, could help deliver an estimated 250,000 to 300,000 tons per year and present a “large kraft liner growth integration opportunity.”

In addition to these integration opportunities, which are part of a broader $400 million in projected cost synergies, WestRock is expected to continue focusing on its own cost reduction initiatives. Sewell said the company is “running full steam ahead” on its $1 billion cost reduction target, with a goal of achieving $450 million by the end of this year through plant closures and other moves. Following the deal’s completion, Smurfit said he anticipates the potential to increase capital investment in the remaining WestRock assets, as Smurfit Kappa nears the end of its own multiyear capital investment plan.

Executives said they also expect further earnings potential by cross-selling new product and geographic offerings to customers. Smurfit said he has no notable plans to sell off the combined company’s consumer packaging assets, which would represent an estimated 15% of the business, and Sewell outlined how that area can complement the larger corrugated and paper business.

“We've really gotten a lot of traction on our enterprise selling between corrugated and consumer in North America; it's over 40% of our sales,” said Sewell, speaking about WestRock’s current business. He added that taking this approach in Europe, where the market is very focused on plastics replacement, creates further potential. “This is going to allow primary, secondary and tertiary packaging solutions, with our innovative machinery business, and to accelerate growth.”

More broadly, the companies see an opportunity to capitalize on the “mega-trend” of sustainability by offering a broader range of “renewable, recyclable and biodegradable packaging.”

Looking ahead, the companies expect to publish full transaction documentation and obtain shareholder approval during the first half of 2024. If all goes according to plan, Smurfit WestRock shares could be listed on the New York and London stock exchanges by Q2. Shares will no longer be listed on Euronext in Dublin.

Correction: This story has been updated to correct the name of Smurfit Kappa’s CFO.