In the past three years Jefferson Smurfit has taken a leading role in the rationalisation of the world packaging industry, particularly with the merger of its JSC operations in the US with Stone Container to create Smurfit Stone. That merger two years ago was the catalyst for a series of mergers and takeovers in the packaging industry - to the extent that the five biggest producers (one of them Smurfit/Smurfit Stone) now control nearly 60 per cent of North American capacity compared to just 40 per cent before the JSC/Stone merger got the rationalisation bandwagon rolling.

But the clear message from Smurfit chief operating officer Mr Gary McGann yesterday is that the consolidation so far has not gone far enough. "Tomorrow's players will command a 20 million ton system with a 20 per cent market share, businesses of sufficient scale as to be a valid component of major equity market indices."

The combined Smurfit/Smurfit Stone operations currently have a 13 per cent market share. And while Mr McGann was coy about speculating what building up a 20 per cent market share would cost the group, analyst Mr Liam Igoe of Goodbody Stockbrokers speculated that going from 13 per cent to 20 per cent of the market could conceivably cost Smurfit/Smurfit Stone up to $10 billion based on the sort of EBITDA multiples in recent mergers and takeovers.

"That won't happen overnight but Smurfit are dealmakers. I think we will see some big deals from Smurfit in the next couple of years, probably in the United States," said Mr Igoe. He added that major deals would probably involve share swaps predominantly, with Smurfit reluctant to burden itself with excessive debt by becoming involved in cash offers. Indeed Mr McGann emphasised yesterday that deals will be done in ways "which preserve the integrity of the balance sheet" - Smurfit's corporate shorthand for avoiding deals which involve heavy debt finance.

But a merger between Smurfit itself and Smurfit Stone, where it already owns 29.5 per cent, does not seem to be a priority. Mr McGann said there are no plans for such a move. "Both companies are being run with like-minded strategies and the current situation is quite effective in the overall market," he said.

Last week, Smurfit Stone continued to build its market share with the $1.4 billion acquisition of the Canadian packaging group, St Laurent, an acquisition that Mr McGann described as "a good deal all around".

The reference to building to a scale that would make Smurfit "a valid component of major equity market indices" implies irritation at the way Smurfit and Smurfit Stone shares have been treated by the market despite the wave of consolidation in the industry and the successful implementation of a series of price rises.

In the space of six weeks, Smurfit shares have come back from a high of €3.35 to yesterday's €2.35, while Smurfit Stone shares in the same period have fallen from $24.50 to under $13 before rallying yesterday. Analyst Mr John Clarke of ABNAMRO attributed this largely to the exodus of money from traditional industries into technology stocks and the news vacuum from the group in the run-up to the 1999 results.

Mr Clarke said at those levels, both Smurfit and Smurfit Stone are trading at extraordinarily low multiples and are strong "buys". Smurfit Stone - upgraded after yesterday's results by Merrill Lynch - are trading at little more than 4 times forecast 2000 earnings while Smurfit is trading at less than 8 times 2000 earnings and around 6 times 2001 earnings.

Analysts were particularly impressed by the trading statement with yesterday's results and also the tone of the presentation from Smurfit senior executives. "Things have changed from last year's bottom of the cycle," said Mr Clarke. "The trading statement was upbeat and there's a good chance that the February $50 a ton price increase will be implemented successfully." Smurfit itself seems confident that this price rise will hold, with Mr McGann stating yesterday that the increase seems to be underpinned by the market.

Mr Clarke added that another positive for both Smurfit and Smurfit Stone is the clear indication that the two companies will be acquisitive and that should counter some of the negative sector trends which have driven the shares down to their current low levels. "We haven't seen $13 for Smurfit Stone since the aftermath of the merger and that was when linerboard was at $380 a ton. It's now at $475, the fundamentals have never been better," he stated.