Packaging giant Smurfit Kappa's shares fall 10% after WestRock merger announcement

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Shares of Dublin-based packaging group Smurfit Kappa plunged 10% at Tuesday’s market open in London after it announced it would combine with U.S. peer WestRock to create an industry juggernaut.

The companies will form Smurfit WestRock — set to be one of the largest packaging companies in the world — run through a holding company incorporated and domiciled in Ireland.

The company will seek a New York listing with a standard listing on the London Stock Exchange.

WestRock shareholders will receive one Smurfit WestRock share and $5 cash, equivalent to $43.51 per share, while Smurfit Kappa shareholders will receive one new share. WestRock shares opened 6.4% higher on Tuesday.

Smurfit Kappa investors will own approximately 50.4% of the new company.

FTSE 100 firm Smurfit Kappa said the deal is expected to be “high single digit accretive” to its existing earnings per share, and over 20% by the end of the first full year.

The paper-based packaging specialist was a pandemic beneficiary, boosted by the rise in e-commerce, and revenue and profits slipped in its 2023 first-half results.

“We’ve always said we had a very big gap in our portfolio because we were not involved in the United States. Smurfit Kappa CEO Tony Smurfit told CNBC’s “Squawk Box Europe” that the company has been trying to find a long-term solution to the problem. “

A robot builds pallets of cardboard boxes at the Smurfit Kappa March corrugated packaging factory.

Bloomberg | Bloomberg | Getty Images

“We identified [WestRock] as an asset that we can develop with and combine with to be an even better asset. After a series negotiations, at 7:15 am this morning, we reached an agreement to close this deal. I believe it will be fantastic for shareholders long-term, mid-term and short-term. Smurfit stated that the combined company will opt for a New York Primary Listing as around 65% revenues are expected to be generated in the U.S.A. and Latin America. He also said “multiples, and the capital pool over there is larger for companies like ours.” Smurfit responded that the deal is a combination, not a takeover. We are paying a premium, and the positions reflect this. “[a.m. London time]The companies had a combined revenue of roughly $34 billion in the year to July, which would make Smurfit WestRock the largest listed global packaging firm by that metric.

“Although management have stressed the joint group’s unparalleled geographic reach, investors appear to have quite a few qualms about the risks ahead,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown. She said that this could include significant upfront costs, despite the eventual savings.

“There have been some headwinds in the sector due to the pandemic ecommerce boom, with customers destocking, and the uncertain economic background ahead. “

Analysts at JP Morgan and Jeffries said the premium was higher than many Smurfit shareholders had been expecting, Reuters reported.

Smurfit Kappa shares were 9% lower at 2:30 p.m. London time.