Dr Smurfit is to remain involved post takeover

Dr Michael Smurfit did not attend the meeting yesterday which marked the beginning of the end of independence for the firm his father founded in the 1930s.

Dr Smurfit, as an interested party in the deal, was not eligible to vote on the two motions under consideration, and was forced to hand over chairmanship of the meeting to non-executive director, Mr Martin Rafferty.

He is not yet ready to relinquish all involvement in the company however, with the Madison Dearborn Partners bid incorporating a key management role for the current chairman and chief executive.

Dr Smurfit has agreed a salary of €16.5 million with the private equity firm and will become chairman of MDCP Acquisitions, the company that will acquire Smurfit if the bid is successful.

With the deal now having cleared the first hurdle, Dr Smurfit and other interested parties will now focus on August 6th, the deadline for final acceptances of the Madison Dearborn offer.

The private equity firm's bid must achieve the approval of 80 per cent of Smurfit shareholders if it is to achieve its goal, a level which observers agreed yesterday was by no means assured at this stage. The substantial gap opening up between the Madison Dearborn offer and the Smurfit traded price is thought to reflect a sense of uncertainty about the desired acceptance level.

Based on yesterday's intra-day prices, a 12 per cent differential has opened up between the offer price and Smurfit's traded price. From a high of €3.22 on May 10th, when speculation of a takeover was at its peak, Smurfit has now fallen to €2.96, with much of the decline attributable to the exit of rival private-equity firm, Texas Pacific, from the takeover process two weeks ago.

The continued attention of US hedge funds in the company's stock is also believed to be attributable to market fears that the deal could unravel if the 80 per cent acceptance rate is not achieved before the August deadline.

Even with this uncertainty, no observers were predicting the deal's demise last night. "I think the price is OK. It's in the lower range of what I consider fair,"said Mr Lars Kjellberg, analyst with CS First Boston in London.

Mr Kjellberg said shareholders could see considerable benefit in agreeing to spin off Smurfit Stone and receive shares in the US company. "They're getting good value," he said.

Last night, Smurfit Stone shares were trading at $15.30 in New York, some $11 off the $26 target placed on the stock by CS First Boston analysts in New York.

If Madison Dearborn does not achieve the acceptance level it needs, the firm can opt to walk away from the deal or extend the deadline for acceptances. Whether this would be a desirable option for the firm remains to be seen.