Mondi established a new entity for 5.14 billion pounds ($6.57 billion), achieved an agreement in principle for an all-share offer to acquire smaller rival DS Smith (SMDS.L), resulting in a paper and packaging behemoth with a market value above 10 billion pounds.
With 54% ownership by Mondi shareholders in the expanded Mondi business, the deal represents an implied value per DS Smith share of 373 pence.
In a joint statement, the companies expressed their enthusiasm for the possibility to form a pan-European industry leader in sustainable packaging solutions based on paper. Paper packaging companies have had a rough go of it over the past year due to destocking by customers and low sales volumes. Their e-commerce demand had previously experienced a pandemic growth due to the meteoric rise of internet purchasing.
The companies are currently assessing the amount of synergies that will come from the deal.
They said that shareholders would benefit from the deal because it would give them more exposure to sustainable packaging's structural growth trends and because it would create a leading player in corrugated packaging across Europe through their highly complementary geographic footprint.
Priced at 33% more than DS Smith's 281p closing share price on February 7—the day before Mondi revealed the preliminary bid—the acquisition price is a significant increase.
With their bid, Mondi has made the paper and packaging business the latest target of a multi-billion dollar push at consolidation. In a deal slated to finish in July 2024, rival firm Smurfit Kappa (SKG.I) will acquire WestRock (WRK.N) for $11 billion. Current management, including CEO Andrew King and CFO Mike Powell, will continue to lead the larger organization.
The current chair of Mondi, Philip Yea, will remain in his role as DS Smith anticipates adding three non-executive directors to the board of the expanded group.
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