Shares of Dublin-based packaging group Smurfit Kappa plunged 10% at Tuesday’s market open in London after it announced it would combine with U.S. peer WestRock to create an industry juggernaut.
The companies will form Smurfit WestRock — set to be one of the largest packaging companies in the world — run through a holding company incorporated and domiciled in Ireland.
It will seek a New York listing with a standard listing on the London Stock Exchange.
WestRock shareholders will receive one Smurfit WestRock share and $5 cash, equivalent to $43.51 per share, while Smurfit Kappa shareholders will receive one new share.
Smurfit Kappa investors will own approximately 50.4% of the new company.
FTSE 100 firm Smurfit Kappa said the deal is expected to be “high single digit accretive” to its existing earnings per share, and over 20% by the end of the first full year.
The paper-based packaging specialist was a pandemic beneficiary, boosted by the rise in e-commerce, and revenue and profits slipped in its 2023 first-half results.
“We’ve always said we had a very big gap in our portfolio because we were not involved in the United States. We’ve been looking over many years to figure out a way to get in there in a way that would reward our shareholders over the long term,” Smurfit Kappa CEO Tony Smurfit, who will lead the combined company, told CNBC’s “Squawk Box Europe.”
A robot builds pallets of cardboard boxes at the Smurfit Kappa March corrugated packaging factory.
Bloomberg | Bloomberg | Getty Images
“We identified [WestRock] as an asset that we can develop with and combine with to be an even better asset. So after a series of negotiations, we finally got to an agreement at 7:15 [a.m. London time] this morning to finally close out this deal, which I think is going to be fantastic for our shareholders in the long-term, medium and short-term.”
Smurfit said the combined company would opt for a New York primary listing as around 65% of revenues were set to be in the U.S. and Latin America, and because “multiples and the pool of capital over there is bigger for companies like ours.”
The companies had a combined revenue of roughly $34 billion in the year to July, which would make Smurfit WestRock the largest listed global packaging firm by that metric.
Asked whether the deal was a takeover rather than a merger, Smurfit said: “It’s a combination … We believe that both companies have incredible opportunities in their respective businesses. Obviously we are paying a premium and therefore the positions reflect that.”
Smurfit Kappa shares were 8.6% lower at 10:05 a.m. London time.