Mondi, DS Smith reach merger agreement

The boards of directors of Mondi PLC and DS Smith PLC, two United Kingdom-based paperboard and packaging producers, have disclosed reaching an agreement in principle for Mondi to acquire DS Smith.

News of the potential merger was reported last month. It involves the combination of two companies with production assets in Europe, North America and South Africa.

Mondi operates six containerboard mills globally, some of which rely more heavily on virgin fiber than recycled content. 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.

The agreement covers key financial terms of a possible all-share offer by Mondi for DS Smith, pursuant to which Mondi would acquire the entire issued and to-be-issued share capital of DS Smith, according to the companies.

In a six-page document dated March 7, the companies say the completion of the merger is conditional on regulatory approval and the completion of mutual confirmatory due diligence to the satisfaction of Mondi and DS Smith.

As currently configured, the merger would see Mondi shareholders owning 54 percent of the combined company, while DS Smith shareholders would own the remaining 46 percent.

The agreement calls for Mondi board Chair Philip Yea to remain in that position; Mondi CEO Andrew King to retain that post; and Mike Powell of Mondi to remain chief financial officer. Three nonexecutive directors of DS Smith are expected to join an enlarged Mondi Group board.

“The combination is an exciting opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions, with complementary geographic footprints, leading customer relationships, a strong balance sheet and cash flow profile, and the potential to deliver substantial benefits to respective shareholders, customers, employees and related stakeholders,” according to the March 7 document.

Mondi and DS Smith say the benefits of the merger include increased exposure to structural growth trends in sustainable packaging; a highly complementary geographic footprint creating a leading player in corrugated packaging across Europe; combining Mondi’s and DS Smith’s strengths in the corrugated value chain; a “market leading, well-located converting network;” and a “strategically located and integrated recycled containerboard production” footprint.

Pertinent to paperboard recycling, the statement portrays the merger as demonstrating a “commitment to sustainability in packaging with a complementary portfolio of products, joining forces to spearhead the shift towards a more circular and sustainable economy.“

The boards of directors say the merged entity would feature vertical integration “synergies” and “highly complementary positions and expertise in containerboard, corrugated solutions and flexible packaging, as well as expected benefits from economies of scale and efficiencies across a combined supply chain and administration.”

“Mondi and DS Smith are currently undertaking an exercise to validate the quantity of synergies which they believe will arise from the combination and intend to publish their estimated quantity of any synergies together with the reports required under the [city of London Code on Takeovers and Mergers] in due course,” the companies conclude.