Jeferson Smurfit will have more than one-third of the equity and effective management control of one of the leading packaging groups in the world when the merger of its JS Corporation associate with Stone Container is completed later this year.
While Stone is a bigger company than JS Corp in terms of sales - $4.8 billion against $3.2 billion, JS Corp shareholders will own in excess of 53 per cent of the shares in the merged company which has a market capitalisation of $4.4 billion (£3.1 billion), the JS Corp closing price on NASDAQ last night.
The announcement had a galvanising affect on the Smurfit share price in Dublin and the JS Corp and Stone prices in New York. With the deal expected to contribute to Smurfit earnings in year one, the shares rose 17p to 277p, having already risen sharply in anticipation of the deal. In New York, Stone shares soared and closed up $2.69 on $20.69, while JS Corp shares rose $0.57 to $21.06. The structure of the offer is almost a one-for-one share swap, with Stone shareholders getting nearly 99 new JS Corp shares for every 100 Stone shares they hold.
Stone's minority position in the merged company, to be known as Smurfit Stone Container Corporation (SSCC) is the inevitable result of the level of debt it is bringing to the merger - $4.3 billion against JS Corp's $2 billion - although asset sales in the two years after the completion of the merger are aimed at reducing the combined level of debt to $4 billion, and possibly lower if the merged group sells JS Corp's newsprint business and timberlands.
JS Corp executives will also occupy the lion's share of the key management positions in the merged company.
Jefferson Smurfit chairman Mr Michael Smurfit will be non-executive chairman of SSCC, while Smurfit finance director Mr Ray Curran will re-locate to Chicago to become deputy chief executive of SSCC. Stone's founder and chief executive, 63-year old Mr Roger Stone, will be chief executive of SSCC but is expected to retire in two year's time.
Smurfit director Mr Paddy Wright said that no decision has been taken on a successor when Mr Stone retires, but it is likely that Mr Curran will step up to the top job. Mr Curran's successor is expected to be announced in the next few weeks.
The fourth senior management position goes to 43-year old Mr Pat Moore, who is currently chief financial officer of JS Corp, and who will have the key senior financial position in SSCC as the merged company gets to grips with its cost-reduction programme.
The $2.5 billion to reduce SSCC debt's will come from the sale of Stone's 25 per cent stake in Canadian paper group Abitibi Consolidated - currently worth $750 million, Stone's newsprint operations and some Stone assets in Europe for which Jefferson Smurfit itself will be an interested party. Mr Wright said that it will be up to the board of SSCC to decide on other asset disposals.
Ahead of the merger, Smurfit has taken steps to sort out the long-running problem of Morgan Stanley's reluctant ownership of a 36 per cent shareholding in JS Corp. Morgan Stanley was Smurfit's partner in the original CCA deal that was the foundation of the group's American business and had got its 36 per cent interest when JS Corp was floated at $13 a share four years ago.
Now Smurfit is buying half of Morgan Stanley's for $25 a share or $500 million, and this means that Morgan Stanley's stake in SSCC will be 9 per cent while Smurfit's will be 34 per cent.
