EXTRA: Smufit Kappa Shares Slip After Sweetened US Bid Is Rejected

26th Mar 2018 13:46

LONDON (Alliance News) - Smurfit Kappa shares sank to the bottom of the FTSE 100 after the Irish paper and packaging company unanimously rejected a revised offer from US suitor International Paper Co.

Under International Paper's revised offer, Smurfit shareholders would receive EUR25.25 in cash, and 0.3028 of a new share in International Paper.

International Paper, based in Memphis, Tennessee in the US is the world's largest pulp and paper manufacturer and boasts a market capitalisation of around USD20.70 billion.

Based on International Paper's closing price of USD50.15 on Friday, this would value each Smurfit share at EUR37.54 compared to EUR36.46 under the previous offer. The revised proposal represents an increase in value of only EUR1.08 per share, Smurfit said, equivalent to less than 3%.

With 236.9 million shares in issue, the new offer would value Smurfit at EUR8.89 billion. Smurfit has a market capitalisation of EUR8.23 billion based on Friday's closing price of EUR34.74 for its Irish-listed shares.

Smurfit Kappa shares were down 3.8% at 2,944.00 pence, the worst performer in the FTSE 100 on Monday. In Dublin, shares were down 3.1% at EUR33.68 in Dublin. However, the stock is up 17% so far in 2018 in London.

"Today's reaction suggests concern among Smurfit Kappa holders (sitting on still handsome 20% profits vs 2018's average) that International Paper's new 15% higher cash component is merely aimed at offsetting the now lower valued share component, and that the meagre 3% boost to the aggregate offer means it is unprepared to go much if any higher. The other worry is that Smurfit Kappa will continue to hold out for improved terms which may never materialise. In which case, shareholders are cashing out as close to the top as they can," said Accendo Markets analyst Mike Van Dulken.

The company said the offer continues to include a "significant proportion" of the consideration in the form of International Paper shares which are US-listed, represent uncertain value, and would expose Smurfit shareholders to the risk of significantly greater leverage and the challenges of integrating two businesses with "fundamentally different cultures".

Earlier this month, Smurfit Kappa shares hit an all time high of 3,254.00p in London, when it advised shareholders to take no action concerning the initial "unsolicited and highly opportunistic proposal" by International Paper.

Smurfit Kappa had said it rejected the takeover approach from the US company, later revealed to have been a EUR8.6 billion cash and stock offer made on February 23. Under the previous International Paper offer, Smurfit shareholders would have received EUR22.00 in cash and 0.3028 International Paper of a share for each Smurfit share, which had valued Smurfit shares at EUR36.46 each, or EUR8.65 billion in total.

Van Dulken added that some investors could also be expecting International Paper to return to the table with another revised offer before walking away.

"The second bid does, after all, show willingness to maintain the bid's 67% cash value to SKG shareholders. However, given Smurfit's second rejection, and unless any third offer is for something closer to recent record highs (10% higher), it may not prove enough to convince management and shareholders alike to agree to tender. Especially given the risk that the value of the 32% share component worsens further, assuming the deal requires at least come anti-trust approval," Van Dulken added.

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