Smurfit Kappa in $20bn merger talks with WestRock

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The blog section could be rewritten as: Advanced discussions are taking place between WestRock, a prominent packaging company from the United States, and Smurfit Kappa, a packaging giant based in Ireland. Their aim is to merge and establish a global powerhouse with an estimated value of approximately $20 billion.

The merged organization, to be called Smurfit WestRock, will be located in Dublin for its worldwide headquarters, while its operations in the Americas will be based in Atlanta, Georgia, as mentioned in a formal announcement by the Irish company.

Smurfit, the largest packaging company in Europe, has decided to be included on the New York Stock Exchange while giving up its prestigious London listing and its listing on the Euronext Dublin exchange. This move follows a trend of prominent companies choosing to withdraw from London and instead prioritize the United States.

The merged team will continue to have a presence on the London Stock Exchange and will likely be headed by Tony Smurfit, who has been the CEO of the Irish company since 2015. When asked about the potential merger, a representative for Smurfit respectfully refrained from providing any additional statements.

CRH, the biggest construction materials conglomerate globally and another one of Ireland's prominent corporations, is transferring its listing to the United States from London in the upcoming month.

The suggested merger between these packaging enterprises, with a total market value of approximately $18.7 billion as calculated by Financial Times using Bloomberg data, aims to establish the leading packaging collaborator worldwide, states the announcement. The combined entity would generate a revenue of about $34 billion, based on the sales of both companies in the previous year, states the announcement.

Smurfit did not disclose any monetary information regarding the planned merger deal, which is anticipated to be carried out through an Irish scheme of arrangement. This is a regular legal process that would need to be approved by the court.

In 2018, the Irish firm declined a takeover bid of nearly €9bn made by International Paper, an American company. The reason for rejection was that the improved offer still underestimated the value of the Irish company.

Regarding the suggested WestRock merger, it stated that the two firms aimed to achieve over $400 million in yearly pre-tax savings by the conclusion of the initial year post-transaction. It mentioned that the merger would involve one-time expenses of approximately $235 million.

The packaging group, when combined, would possess adjusted earnings before interest, tax, depreciation and amortization totaling $5.5 billion.

Smurfit emphasized the presence of "robust cash flows to fuel future expansion and provide returns to investors." He also stated that the merging of the two companies' extensive network of 500 operations and 67 mills would grant the newly formed company an "unmatched global footprint," encompassing 42 countries with a particular focus on Europe and the US.

The agreement would provide "enticing advantages" to stakeholders by enhancing operational effectiveness and amplifying profits, as stated.

Smurfit, established in 1934, was purchased by Jefferson Smurfit in 1938 and strengthened its status as a top European company by joining forces with Kappa Packaging from the Netherlands in 2005.

Any agreement would need to be approved by shareholders and regulatory authorities. The company did not mention a specific timeline for the completion of the deal. It remains uncertain as to who would be in charge of the combined entity.

WestRock, established in 2015 following the combination of MeadWestvaco and RockTenn, did not provide an immediate response to a comment request.

According to Justin Jordan, an expert in packaging analysis at Davy in London, Smurfit and WestRock hold approximately 20% of the market for regular brown boxes used by retailers and ecommerce companies in Europe and the United States, respectively.

"He mentioned that there is a solid business rationale behind this decision," he stated, further emphasizing that a merger between the two companies would establish a prominent entity in the packaging industry for major international buyers like Amazon. The anticipated benefits resulting from this collaboration, according to him, are highly attainable and even considered a cautious projection.

The industry that deals with packaging experienced a high level of demand throughout the pandemic due to the increase in online shopping. However, it has now declined. Jordan predicts that the demand will bounce back in 2024, primarily driven by the transition from plastic to paper packaging, which could fuel growth in the sector.

The information in this blog has been rectified to mention that Smurfit joined forces with Kappa Packaging in 2005, not 1974.