27th Mar 2024 11:48
(Alliance News) - Analysts think there is a risk that Mondi PLC could walk away from bidding for DS Smith PLC if International Paper Co firms up a competing offer.
After the market close on Tuesday, DS Smith confirmed that it was in talks with International Paper, regarding a possible all share takeover offer.
Under the terms of the proposal, DS Smith shareholders would receive 0.1285 shares in International Paper for each share they own in DS Smith.
Based on International Paper's share price of USD40.85 at close of business on Monday, the terms represent a value of 415 pence per share. This would value DS Smith at around GBP6.2 billion.
In a statement, DS Smith said it acknowledged the "strategic merits and potential for value creation through a combination with International Paper," and would progress talks.
Talks would Mondi would also continue.
Earlier this month, Mondi and DS Smith agreed a deal in principal which valued each share in DS Smith at 373p.
Shares in DS Smith rose 8.1% to 388.87p each in London on Wednesday. Mondi was slightly lower at 1,394.50p.
"Above 400p we see less support from [the] Mondi shareholder base, & see [a] risk Mondi could walk away," analysts at Jefferies said.
Jefferies believes there would be greater synergies with Mondi compared to the International Paper bid given the integration benefits and geographic overlap.
But, while Jefferies see greater value creation from a Mondi & DS Smith combination "it will come down to the firm actual offer that comes forward."
Russ Mould at AJ Bell noted DS Smith is the latest company to find itself at the centre of a bidding war as interested parties only "throw their hat in the ring" when someone else makes the first move.
He pointed out the International Paper proposal is structured as an all-share offer which means UK investors will have to be comfortable owning US-listed stock to support the deal.
"Ultimately, the board will choose the offer that delivers the best value for shareholders. But what it shows is that investors should not rush to accept the first bid that comes along if one of their stocks becomes a takeover target. They just might find someone else wants to make a higher bid, so load up on the popcorn and enjoy the action."
Analysts at Davy explained Mondi has until April 4 to make a firm offer for DS Smith or walk away.
By Jeremy Cutler, Alliance News reporter
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