Smurphy Kappa to 11 billion US dollars to acquire Veselok, the world's leader is ready to come out!
2023-09-14
According to Reuters, Irish paper and carton giant Smurphy Kappa Group is buying U.S. rival Viselok for $11 billion to create the world's largest paper and packaging company and try to better cope with the current situation facing both sides. Weak economic environment.
The deal is tantamount to merging Europe's largest paper and packaging producer with the second-largest in the United States to create a company worth nearly $20 billion. Shares in Smurphy Kappa Group fell 10 percent in premarket trading on Tuesday, while Viselok rose 7.2 percent, with analysts saying the Irish company paid a higher premium than most investors expected.
Shareholders of the new company, Murphy Velcro, will receive one share and hold $5 in cash each, or $43.51 a share, Velcro shareholders said in a statement. Analysts at JPMorgan and Jefferies questioned Velcro's closing price of $31.88 on September 6, the day before the talks were disclosed, or a 36% premium. JPMorgan said most investors it interviewed assumed a premium of 15% -20%.
The deal is a 28 percent premium to Monday's closing price, and Smurphy Kappa treasurer Ken Powers, who will hold the same role at the new company, told Reuters it was a fairly normal market price, but not a significant part of the deal. "When you add $5, the two companies are at the same combined price, about seven times. That's a lot less than anything the industry has done in the past few years, and most of them are double-digit trades. We're not going to put it at the top of the cycle, and we're not going to put it at the bottom. It's at this sweet spot that we feel like there will be better times ahead."
Tony Smurphy, Smurphy Kappa chief executive, and Irial Finan, chairperson, will also remain in the new company following negotiations that began over the past eight months, Mr. Powers said. Smurphy Kappa shareholders will receive a new share of Smurphy Veselok for each share they hold. They are expected to own about 50.4 percent of the new company when the deal closes in the second quarter of 2024.
Mr. Smurphy said he did not see any antitrust issues, with the exception of Mexico, given the limited overlap between Smurphy Kappa's operations in Europe, South and Central America and Viselok's operations in the United States. The boards of Smurphy Kappa and Viselok unanimously approved the deal and decided to recommend that their respective shareholders vote in favor of the deal.
Tony Smurphy, CEO of Smurphy Kappa, said: "This incredibly exciting merger of our two great companies is a defining moment for the global packaging industry. Smurphy Viselok will be the packaging partner of choice for customers, employees and shareholders. We will have leading assets, a unique global footprint in paper and corrugated boxes, exceptional consumer and specialty packaging businesses, significant synergies and enhanced scale to create value in the short, medium and long term."
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David Sewell, CEO of Viselok, said: "We look forward to partnering with Viselok to build a leading global platform that leverages the strengths of Viselok's consumer product portfolio to provide customers with truly comprehensive packaging solutions and deliver meaningful value to our shareholders today and into the future. Viselok shares our commitment to innovation throughout the packaging lifecycle and we are confident that Viselok will continue to lead the industry forward. I am grateful to the team members at Viselok who have worked hard to make this merger possible and are excited about the many opportunities that come with being our industry's preferred partner."
Smurphy Viselok will be chaired by Irial Finan, Tony Smurphy as chief executive and Ken Powers as chief financial officer. The Smurphy Viselok board of directors will consist of six Viselok and eight Smurphy Kappa directors, including Finan, Smurphy and Powers.
Packaging companies have benefited from a boom in demand for goods and e-commerce during the COVID-19 pandemic lockdown, but have struggled to meet those demands as consumers resume spending on services and producers begin to trim packaging inventories. Smurphy Kappa last month reported a drop in core profit in the first half as the company struggled to offset lower sales volumes, but expects inventory cuts from customers to end soon, with packaging carton prices likely to rise again as demand recovers.
While third-quarter profit beat Wall Street expectations, the company said it was still focused on streamlining its portfolio and further reducing costs. JPMorgan estimates the combined entity will have about 20 per cent of the corrugated packaging market in Europe and North America.
For the fiscal year ended June 30, the two companies combined adjusted core profit of $5.50 billion and revenue of about $34 billion, ahead of their closest rivals International Paper and Ball Enterprises. Smurphy Kappa rejected a $9.50 billion takeover offer from International Paper in 2018.
The combined entity aims to save more than $400 million in pre-tax costs by the end of the first full year after completion, with one-time cash costs of about $235 million. The company said this could increase Smurphy Kappa's earnings per share by more than 20%. Bowers said he believes the synergy effect will eventually surpass that figure.
Smurphy Wiselock will be based in low-tax Ireland with its global headquarters in Dublin. It will be listed in New York and on the London Stock Exchange Standard. Smurphy Kappa will be delisted from Dublin Euronext in the latest blow to the Irish exchange as construction materials giant CRH prepares to exit later this month.