Smurfit Kappa eyes Irish market exit amid $19bn merger talks

Smurfit Kappa is in merger talks with US peer WestRock in what would create a cardboard box-making giant with a market value of close to $19 billion (€17.8 billion) and lead to the Irish group’s exit from the Dublin stock exchange.

The Iseq 20 heavyweight confirmed it was in a tie-up in a statement in the early hours of Thursday, after the development was first reported by the Wall Street Journal. An announcement on the deal may come as early as next week, subject to the talks reaching a successful conclusion, according to sources.

Negotiations centre on shareholders in Atlanta-based WestRock – the second-largest paper packaging company in the US – mainly receiving shares in the combined group. The new entity would be known as Smurfit WestRock. It comes a little over five years after Smurfit Kappa rejected a takeover approach from WestRock’s larger domestic rival International Paper.

Shares in Smurfit Kappa fell 3.8 per cent in Dublin as investors digested the deal, giving it a market value of €9.39 billion, while WestRock’s market capitalisation was up more than 5 per cent at $8.59 billion by the time of the close of European trading.

Three big international headwinds that could derail Ireland

---

Passing up the chance for a risk-free return on your savings is madness

---

E-gates of hell signal start of travel chaos season

---

‘Every country in Europe right now with a coastline and deep water is going after floating offshore wind.’ Except Ireland

---

Smurfit Kappa said the combined group would be headquartered in Dublin, with operations in the Americas run out of Atlanta. However, it would quit Euronext Dublin and downgrade its listing in London as it seeks a primary quotation on the New York Stock Exchange. The planned change in the UK listing will mean it will fall out of the FTSE 100 index.

The development comes in the same month that CRH, the long-standing largest company on the Dublin market, is set to cancel its Irish listing as it takes on a primary listing in New York.

“Discussions between the parties remain ongoing regarding the potential combination,” Smurfit Kappa said. “Smurfit Kappa and WestRock are engaged in a mutual due diligence process. The definitive terms and conditions of any transaction will be set out in a further announcement.”

A deal would create a packaging behemoth with market leading positions in the US and Europe. The two firms currently employ about 110,000 people between them as independent companies.

Smurfit Kappa, led by chief executive Tony Smurfit, said the boards of the two companies believe a merger represents a “unique opportunity to create value”, with more than $400 million of annual pretax cost synergies expected to be delivered by the end of the first full year following completion. One-off restructuring costs are estimated at $235 million. Mr Smurfit would also lead an enlarged group, sources said.

The combined revenue of the two companies for the 12 months to the end of June amounted to about $34 billion, while combined earnings before interest, tax, depreciation and amortisation (ebitda) were $5.5 billion.

Long one of Ireland’s best-known companies, Smurfit Kappa surged during the pandemic as consumer spending rocketed. That boosted demand from retailers for Smurfit’s cardboard boxes, as online shopping jumped. Its shares more than doubled from just under €21 in late March 2020 to more than €50 last summer. Yet the stock has struggled this year as people reined in their spending.

The shares were down about a fifth so far in 2023 before news of the talks emerged, and Mr Smurfit pointed to “generally tepid demand” from consumers when announcing the firm’s half-year results last month. Sales fell 9 per cent in the first six months of 2023 compared with a year earlier, while cardboard consumption dropped 6 per cent.

For its part, WestRock is one of the biggest packaging companies in the US, with about 58,000 staff globally, according to its website. Listed in New York, it operates about 300 manufacturing facilities around the world. It also has five offices on the island of Ireland, in Belfast, Dublin, Limerick and Westport. Like Smurfit, WestRock shares have slumped this year and are down about 16 per cent since January 1st, giving it an overall value of $8.2 billion.

Citigroup is acting as corporate adviser to Smurfit Kappa on the talks, while WestRock has retained investment banks Evercore and Lazard, sources said.