Shares in the packaging group Smurfit Kappa rose for a second day yesterday, reaching €36 by the close of business in Dublin. The shares had closed at €28.62 on Monday night. The massive surge resulted from a takeover approach from US based rival International Paper Company. But Smurfit Kappa said no to the offer.
David Holohan, chief investment officer with Merrion Capital, explained that the offer from International paper was a mix of stock and cash and amounted to around €36.50 per share in Smurfit Kappa. "Smurfit Kappa said it undervalued the business and there was speculation that if International Paper came back with a bid of €40, Smurfit Kappa may engage with them and that led to the share price increasing by 6%," he said.
Mr Holohan said the likelihood is that Smurfit Kappa would be willing to sell if International Paper was willing to pay the right price. "They realise it's a consolidating industry globally. There are six large players. Smurfit Kappa is one of these. "International Paper is US based and it is the largest packing company in the world. They've significant market share in the US. They don't have a big exposure in Europe where Smurfit Kappa is the market leader. Both share exposure in South America," he explained.
"It would be a good strategic fit. Geographically they would be supportive of each other's operations and give International Paper an exposure to Europe," the analyst added.
International Paper has reserved the right to come back with a higher bid. "The ball moves back into their court now or they walk away, but given the due diligence they've done, they're more likely to come back with a higher offer," he said. Mr Holohan said somewhere around €40 would be the "sweet spot" although the final bid may be above that level. He explained that, in the event of a sale, Smurfit Kappa would delist from the Irish stock exchange, which would be a significant move given that it is in the top five or six listed companies on the ISEQ.
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