8th Mar 2024 11:08
(Alliance News) - Mondi PLC on Friday said it agreed in principle to a deal to acquire DS Smith PLC, in a deal which is unlikely to see any setbacks on the path to completion, analysts at Irish broker Davy believe.
Mondi said the possible merger that would create a company worth more than GBP10 billion is subject to regulatory clearance and mutual confirmatory due diligence. Mondi shareholders would own 54%, while their DS Smith counterparts would hold 46%.
Based on Mondi's closing share price of 1,381 pence on February 7, the day before Mondi announced a takeover approach, the terms of the combination would represent an implied value of 373 pence per DS Smith share and a premium of 33% to DS Smith's closing share price of 281 pence per share that day.
The panel on takeovers & mergers had extended the deadline to enable the parties to continue their discussions on the merger. Mondi has until April 4 to make a firm offer for DS Smith. The due date was originally March 7.
Mondi first talked up the idea of a possible bid for DS Smith on February 8.
If the deal succeeds, Mondi Chair Philip Yea will keep the same role in the combined entity, Mondi Chief Executive Officer will retain the same post and Mondi Chief Financial Officer Mike Powell will retail a similar position. Three non-executive directors of DS Smith are expected to join the enlarged Mondi board.
In reaching agreement in principle on the key terms, Mondi said both boards have taken into account the "substantial" synergies which they believe would arise from combining the two pan-European companies.
Davy said the deal can hand a more than 20% boost to Mondi's earnings per share in 2025 as well as a 12% return on capital employed, and the Irish broker assumes "conservative" merger synergies of EUR200 million.
Although both peers in the packaging sector, Davy believes the Mondi-DS Smith tie-up is not likely to be subject to sizeable regulatory scrutiny.
"With limited Mondi and DS Smith geographic overlap, we anticipate minimal regulatory risk to this proposed merger. Additionally, with packaging peers busy with management change or other M&A opportunities, we see limited interloper risk to either Mondi or DS Smith," Davy added.
"We believe the proposed merger benefits both Mondi and DS Smith shareholders."
DS Smith shares shot up 6.3% to 345.80 pence each in London on Friday morning, giving it a market capitalisation of GBP4.76 billion. Mondi fell 1.9% to 1,354.00p, giving it a GBP5.98 billion market value.
By Eric Cunha, Alliance News news editor
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