IP: Merger with DS Smith will ‘significantly’ strengthen combined packaging business

After making waves last week with a proposed $7 billion all-stock offer to buy London-based paperboard and packaging company DS Smith, International Paper (IP) confirms “significant” progress has been made in reciprocal due diligence, the results of which it says confirm that a merger will benefit the combined businesses.

Memphis, Tennessee-based IP came in with an offer last week after DS Smith previously had reached an agreement in principle with fellow British paper and packaging company Mondi for an all-share offer to buy DS Smith for about $6.5 billion.

Under the terms of IP’s offer, DS Smith shareholders would receive 0.1285 shares in IP for each share they own in DS Smith. The proposal represents a premium of 48 percent compared with a 33 percent premium represented in the Mondi offer.

“Corrugated packaging solutions is a core component of DS Smith’s business,” IP says in an April 4 update about the possible merger. “Due diligence has confirmed International Paper’s belief that the combination will significantly strengthen the combined packaging business and customer offerings—with packaging representing 84 percent of International Paper’s current sales, approximately $1.5 billion of which is driven from European sales.”

IP expects a merger with DS Smith will generate “significant synergies” and drive “compelling value creating” for both companies’ shareholders. “The delivery of the synergies will be supported by International Paper’s significant expertise in acquiring and integrating businesses,” IP continues. “In addition, International Paper’s confidence in delivering a successful integration is underpinned by DS Smith’s own expertise in acquiring businesses and integrating them.”

As part of the proposed merger, IP foresees DS Smith’s North American manufacturing locations and IP’s European manufacturing locations would continue their respective operations, though it is intended the combined company would be headquartered and domiciled in Memphis.

IP says it intends to maintain key elements of DS Smith’s existing headquarters and is proposing to establish a European headquarters in London.

According to a report last week from Bloomberg, DS Smith is separately continuing its talks with Mondi, which had until April 4 to make a firm offer, while IP has until April 23.

“Bringing International Paper together with DS Smith is a logical next step in International Paper’s strategy to create value by strengthening our packaging businesses in North America and Europe,” IP Chairman and CEO Mark Sutton says. “By combining the strengths of both companies, we believe we can enhance our offering of sustainable packaging solutions for customers in attractive and growing markets.”