DS Smith packaging

DS Smith has announced it's proposed acquisition of SCA packaging for €1.6bn. The acquisition will exclude SCA's kraftliner operations, and will create the second largest recycled packaging business across Europe. DS Smith supplies multinational companies such as Proctor & Gamble, Nestle and Reckitt Benckiser. 

DS Smith supplies multinational companies such as Proctor & Gamble, Nestle and Reckitt Benckiser.

The board of DS Smith believes that the acquisition will add value for DS Smith shareholders by:

Providing improved service pan-European FMCG customers; Developing broader relationships with existing customers as well as the potential to win new customers; Driving further benefits from the Enlarged Group’s operational structure; Delivering estimated annualised pre-tax cost synergies from procurement and operational effiencies; Offering an expected return on capital above DS Smith’s weighted average cost of capital for the first full financial year of ownership, with further improvement in the second and third full financial years; Substantially enhancing DS Smith’s EPS; and utilising a prudent financial structure for the acquisition with net debt to EBITA targeted to be back at 2.0x by the end of the first full financial year following completion.

Commenting on the acquisition, DS Smith’s Group Chief Executive, Miles Roberts said: “The acquisition builds on DS Smith’s proven strategy and the successful acquisition of Otor. 

"This is an exceptional opportunity to create value for shareholders by becoming the leading recycled packaging company across Europe – a company that will be better positioned to deliver even better service and innovation to our strong and growing FMCG customer base.”

Stockbrokers including Goodbody, Bank of America Merill Lynch (BAML) and J P Morgan Chase (JPMC) have asserted the value of the acquisition to DS Smith and to the packaging sector as a whole. 

Goodbody says: “This represents a positive deal which will make DS Smith the second largest corrugated player in Europe with close to 3m tonnes of corrugated capacity. We believe the deal will be well received as DS Smith demonstrates its ambition and makes significant strides in reaching its strategic goals. Overall, such large scale consolidation within the industry is a positive for the sector.”

BAML says: “The deal announced today is a packaging deal. For the other containerboard and corrugated players, the deal is generally good news, in or view. Smurfit Kappa is trading at less than 5x 2012E EBITDA on our current estimates. It could mean Smurfit continues to de-liver though Smurfit could be a buyer of SCA’s retained kraftliner assets in time, we believe. We don’t see obvious direct benefits for UPM and Stora Enso, though the transaction shines the light on broader sector consolidation again.”

JMPC says: “We believe the proposed acquisition will complement DS Smith’s current strategy of producing value-adding corrugated packaging for FMCG customers using recycled fibre. It should increase its geographic presence, improve its product range and innovation and lead to potentially significant cost synergies.”