Smurfit deal clears its first hurdle

Jefferson Smurfit shareholders were understood last night to have approved the first stage in the company's takeover by US private equity firm Madison Dearborn Partners.

The shareholders had been asked to vote on two resolutions at an extraordinary general meeting (e.g.m.) in Dublin, both of which required approval before the Madison Dearborn deal could proceed.

While the results of the votes were not due to be announced until today, Jefferson Smurfit adviser Mr Peter Crowley, chief executive of IBI Corporate Finance, said after the meeting that the number of proxies received by Smurfit indicated that both motions were "likely to be passed".

Smurfit advisers indicated last week that the level of proxies received ahead of the e.g.m. had been high.

The first motion, which asked shareholders to approve the spin- off of Smurfit's 29.3 per cent holding in Smurfit Stone Container Corp in the US, required a 75 per cent majority of shareholders who were eligible to vote at the e.g.m..

Shareholders heard that a successful conclusion to the Madison Dearborn bid would see them receive one share in Smurfit Stone for every 16 shares they held in the overall group as well as a cash consideration. It was established at the meeting that the share split would attract capital gains tax.

The second resolution, which asked for approval of management participation in the leveraged buy- out, required a simple majority of those voting.

For technical reasons, a number of hedge funds, which are believed to hold up to 30 per cent of Smurfit, were not eligible to vote at the meeting.

With these two hurdles passed, the next step in Madison Dearborn's bid to acquire Smurfit reaches its climax on August 6th, the closing date for the offer.

Smurfit's shares closed up 10 cents at €2.96 in Dublin last night, with dealers attributing the price rise to momentum at Smurfit Stone rather than the overall group.

The group is now trading significantly under the theoretical value of the Madison Dearborn offer, which, based on yesterday's price for Smurfit Stone, was hovering at €3.08 per share.

Mr Crowley said that it was still too early to gauge how the deal would be received by shareholders when it came to the final stage. Shareholder approval of 80 per cent is required for the offer to be accepted.

In a quiet Burlington ballroom, where empty chairs outnumbered shareholders, Smurfit independent directors, under the chairmanship of Mr Martin Rafferty, fielded questions yesterday on the two resolutions before the meeting and on the future for the Smurfit Group.

In response to a question about the benefits the proposed sale would bring for the Smurfit group, Mr Rafferty said the private equity firm would be able to operate the company on a much higher debt/ equity ratio than the existing management, thus allowing for a different corporate style.

"We have always been conservative in our gearing," he said.