In one of the biggest multinational corporate deals this year, packaging and paper group Mondi said Friday it plans a mega-merger with UK-listed DS Smith for £5.1 billion (R122bn), in a deal to create one of the world’s largest makers of packaging.
The proposed all-share deal, the full terms of which still have to be finalised, aims to create “a pan-European industry leader…with complementary geographic footprints… a strong balance sheet and cash flow, and the potential to deliver substantial benefits to shareholders, customers, employees and stakeholders,” Mondi’s board said in a JSE regulatory notice.
DS Smith’s share price soared 5.2% in London on Friday to 341.99 pence. For its shareholders, the proposed transaction has an implied value of 373 pence a share, representing a 33% premium over DS Smith’s price on February 7, the day before it said it had received an approach from Mondi.
Mondi’s share price was lower by 1.67% on the JSE to R324.97, after falling from R341.54 from February 29.
The companies said the combination would generate cost savings and benefits of scale in a packaging industry that is consolidating.
According to Moneyweb, rival Smurfit Kappa Group last year agreed to acquire WestRock Co, to create an Irish-American packaging group.
The sector has benefited from higher demand during the Covid pandemic after consumers ordered more goods online, but demand slowed somewhat after consumers returned to the malls and stores. However, online purchases have since become a significant portion of retail sales in developed markets. DS Smith lists Amazon as one of its clients.
Mondi shareholders will own 54% of the combined group, with DS Smith owning the rest.
DS Smith is one of the world’s largest cardboard box makers and began as a box-making business started by the Smith family in east London in 1940. As of February 2024, it had a market capitalization of £5.69bn (R136.65bn).
JSE and London-listed Mondi, with a market cap of about £6.1bn, employs some 21 000 people with around 100 production sites across more than 30 countries, mainly in Europe, North America and South Africa. It was established in South Africa in 1960’s as part of Anglo American.. According to Bloomberg, Mondi had explored a takeover of DS Smith in 2021, but nothing came of it.
Mondi chairman Philip Yea will be chairman of the merged group, and Mondi’s current CEO Andrew King will take the same position in the enlarged Mondi group. Mike Powell will be the CFO. Three DS Smith non-executives are expected to join the board.
Benefits of the deal were listed as increased exposure to structural growth trends in sustainable packaging, a highly complementary geographic footprint creating a leading player in corrugated packaging across Europe and the combining of both Mondi's and DS Smith's strengths in the corrugated value chain:
The merged group would have “cost efficient virgin containerboard mills”, a well located converting network and strategically located and integrated recycled containerboard production, of which a feature would be enhanced vertical integration.
The merged group would also have a strengthened ability to serve global FMCG customers and provide an opportunity to create “significant value” for both Mondi and DS Smith shareholders from substantial synergies.
The companies have been granted an extension by the London Stock Exchange’s Panel on Takeovers and Mergers to April 4, 2024, for the parties to discuss the terms of the deal more, and by which time Mondi must make a firm offer.
BUSINESS REPORT