Mondi considers bid for DS Smith

United Kingdom-based paper and board producer Mondi PLC has been preparing for a potential bid to acquire fellow U.K.-based packaging and paperboard producer DS Smith PLC.

“Mondi confirms that it is in the early stages of considering a possible all share combination with DS Smith,” Mondi says to its investors in early February.

DS Smith’s management quickly acknowledged it had received a highly preliminary expression of interest from Mondi regarding a merger.

In its announcement, Mondi says it routinely considers various options within its disciplined capital allocation framework aimed at accelerating its growth in the structurally growing packaging sectors in which it operates.

Mondi operates six containerboard mills globally, some of which rely more heavily on virgin fiber than recycled content such as old corrugated containers (OCC). The firm’s containerboard mills are in Finland, Italy, Poland, Slovakia, South Africa and Turkey.

In North America, Mondi operates a newly acquired unbleached kraft pulp mill in Alberta, a kraft paper facility in Minnesota and about a half-dozen other downstream facilities in the United States.

DS Smith operates 10 paper and board mills in Europe and two U.S. mills in Georgia and Pennsylvania. The company emphasizes circularity in its operations and marketing materials, including the recyclability of its products and use of recycled content.

In its announcement, Mondi also emphasizes sustainability, as well as the European market, calling the potential acquisition “an exciting opportunity to create an industry leader in European paper-based sustainable packaging solutions.”

Mondi says the combination of DS Smith’s assets with its own is “well-positioned to benefit from structural growth trends in sustainable packaging” and benefits from enhanced vertical integration, bringing with it a "balanced paper position, greater earnings resilience through the cycle and enhanced security of paper supply, for the benefit of both shareholders and customers.”

"There can be no certainty whether will be made or the terms of any such proposal," DS Smith notes, however.

Reports on the announcements point to Mondi’s divestiture of its Russian assets in the wake of its invasion of Ukraine as a factor in Mondi seeking to regain growth momentum.

The Financial Times notes Mondi also was rumored to be considering making a bid for DS Smith in early 2021.

The vertical integration Mondi refers to in its 2023 announcement likely references the more substantial corrugating, box making and packaging design capacity of DS Smith, according to the Financial Times and other reports.

The potential acquisition is the second sizable combination to be attempted in the packaging board sector in the past few months. Last September, Ireland-based Smurfit Kappa Group reached an agreement to acquire Atlanta-based WestRock Co.