International Paper wins the game. Between Mondi and American packaging manufacturer DS Smith has decided in favor of IP's takeover offer. The transaction is expected to be finalized by the fourth quarter of 2024, subject to the approval of IP's and the UK packaging producer's shareholders and customary closing conditions. The merger will create an international leader in corrugated packaging solutions, with combined 2023 sales of around $28.2 billion (including $18.9 billion for IP) and EBITDA of around $4.1 billion.
The agreement values each DS Smith share at 415 pence, and entails the issue by IP of 0.128 5 per share for each DS Smith share (i.e. 179,948,967 shares). As a result, IP shareholders will own 66.3% of the new company and DS Smith shareholders 33.7%. The value of the transaction is approximately $9.9 billion.
Complementary operations in Europe and America
For Mark S. Sutton, IP's President and CEO, the merger represents a major step forward in the company's development "a logical step in IP's strategy to generate profitable growth" by strengthening its global packaging business.
DS Smith has a particularly strong presence in Europe, with sales of $9.4 billion in fiscal 2023, while European sales for IP, which is well established in North America, amount to $1.5 billion.
Millions of dollars of synergy
The transaction is expected to generate at least $514 million in pre-tax cash synergies on an annualized annual basis by the end of the fourth year following the combination.
Almost half of these synergies will come from plant and supply chain operating synergies, around a quarter from reduced overheads at head office and duplicate operations, and another quarter from operational sourcing synergies resulting from the increased size of the combined company.
IP expects approximately 33% of synergies to be realized in the first year, followed by 66% in the second year and 95% in the third year after closing.
The integration of around 500-600,000 tonnes of DS Smith containerboard into the IP mill system will increase the combined integration rate to around 90%.
DS Smith headquarters in London retained
Following completion of the reverse split, all new IP shares issued to DS Smith shareholders will be eligible for listing on the New York Stock Exchange, subject to official notice of issue. IP also intends to apply for a secondary listing of its shares on the London Stock Exchange.
Andrew K. Silvernail will become CEO of the combined company, which will be headquartered like IP in Memphis, Tennessee, and retain DS Smith's existing London headquarters as its EMEA headquarters.
