More big M&A moves in paper sector

Another big-time merger of a U.S. and European paper and packaging company has made waves in the industry as International Paper (IP) announced in mid-April it had agreed to acquire London-based DS Smith.

The deal is valued at about $9.9 billion, and the merger is expected to close by the fourth quarter of this year, with Memphis, Tennessee-based IP saying it will allow the creation of “a truly global leader” in sustainable packaging.

It’s the second major merger announcement in less than a year after Irish paperboard and packaging company Smurfit Kappa agreed to purchase Atlanta-based WestRock in September 2023 in a deal worth $11.2 billion.

"Combining with DS Smith is a logical next step in IP’s strategy to drive profitable growth by strengthening our global packaging business.” – Mark S. Sutton, CEO, International Paper

Under the terms of the recently announced merger, IP will issue 0.1285 shares for each existing DS Smith share, resulting in 66.3 percent pro forma ownership by IP shareholders and 33.7 percent ownership by DS Smith shareholders.

“Combining with DS Smith is a logical next step in IP’s strategy to drive profitable growth by strengthening our global packaging business,” IP Chair and CEO Mark S. Sutton said at the time of the announcement. “DS Smith is a leader in packaging solutions with an extensive reach across Europe, which complements IP’s capabilities and will accelerate growth through innovation and sustainability. We are confident this [merger] will drive significant value for our employees, customers and shareholders.”

Notably, the move would strengthen IP’s European footprint with the addition of DS Smith’s box network and result in the integration of up to 600,000 tons of DS Smith’s containerboard capacity into the IP mill system.

The merger also bolsters IP’s recycling operations. According to Recycling Today’s 2023 list of North America’s largest recovered paper consumers, IP is the second-largest consumer of recovered paper, taking in approximately 5 million tons across 28 mills last year. Meanwhile, DS Smith is among the largest recyclers in Europe. According to the company, it handles about 6 million metric tons per year of material for recycling and operates the largest recycled paper mill in the U.K. and second-largest in Europe, the Kemsley recycled paper mill in southeast England, with an annual production capacity of 840,000 tons.

“Bringing together the capabilities and expertise of both companies will create a winning position in renewable packaging across Europe while also enhancing IP’s North American business,” IP CEO-elect Andrew Silvernail said in April. “I firmly believe this strategic combination offers a unique and highly compelling opportunity to create tremendous shareholder value.”

Silvernail would become CEO of the combined company upon the merger’s completion, while current DS Smith CEO Miles Roberts would be retained as a consultant to assist with integration matters.

The combined company would be headquartered in IP’s current home of Memphis, with the company noting it has plans to establish a Europe, Middle East and Africa region headquarters at DS Smith’s home base in London.

DS Smith initially was approached in February by fellow U.K.-based paper and board company Mondi PLC, and the companies reached an agreement in early March before IP entered the picture as a rival bidder. However, a filing with the U.S. Securities and Exchange Commission reveals IP entered into a confidentiality agreement with DS Smith in late February.

In an April 19 statement, Mondi said it would not make a counteroffer.

“Following a period of due diligence and after carefully considering the value the combination with DS Smith would deliver to Mondi’s shareholders, the Mondi board has decided the transaction would not be in the best interests of its shareholders,” the statement reads.

“Mondi’s board remains confident that its compelling portfolio of sustainable packaging and paper products, scale and cost-advantaged quality asset base ... ensure it is well-positioned to deliver long-term structural growth in the markets in which it operates.”