12th Sep 2023 12:08
(Alliance News) - The cash-and-shares merger of Smurfit Kappa Group PLC and WestRock Co is not seen as a good deal by shareholders of the Irish company, AJ Bell's investment director commented on Tuesday.
The Dublin-based paper-based packaging manufacturer was down 9.2% to 2,798.00 pence each in London on Tuesday morning, an outlier amid a gain of 0.6% for the wider FTSE 100 index.
Smurfit Kappa on Tuesday said it signed a definitive transaction agreement with the US's WestRock to combine as Smurfit WestRock, which it said would create a "global leader" in sustainable packaging, headquartered at Smurfit's current site in Dublin.
The new company's North and South American operations will be headquartered at WestRock's base in Atlanta, Georgia.
Smurfit Kappa said that for each WestRock share, WestRock shareholders will receive one Smurfit WestRock share and USD5.00 in cash, while each Smurfit shareholder will receive one Smurfit WestRock share for each share in Smurfit.
Smurfit shareholders will own around 50.4% of the new company, while WestRock shareholders will hold the remaining 49.6%.
Smurfit Kappa said the combined firm will de-list from Euronext Dublin and cancel its premium listing on the London Stock Exchange, moving to a standard listing. It will have its primary listing on the New York Stock Exchange, where WestRock is currently traded, and seek US equity index inclusion.
Smurfit is the latest large Irish listing to be lost to the London Stock Exchange. CRH PLC also will move its primary listing to New York, while Kingspan Group PLC will cancel its London listing altogether and keep a primary listing on Euronext Dublin.
AJ Bell's Russ Mould noted Smurfit Kappa was the main outlier amid an otherwise positive FTSE 100, "suggesting investor confidence is picking up" overall.
However, "the market doesn't seem to think this is a good deal for Smurfit despite the potential economy of scale benefits from parking the two companies together," said Mould.
In contrast to the stock price decline for Smurfit, WestRock shares were on the rise across the Atlantic. They were up 7.5% in New York pre-market trading on Tuesday to USD36.60, suggesting investors think this is a better deal for WestRock than for Smurfit Kappa.
Irish stockbroker Davy was more positive. It rates WestRock at 'outperform', setting a price target of USD47.00.
It estimates pro-forma leverage of the merged Smurfit WestRock entity with a pro-forma net debt against earnings before interest, tax, depreciation and amortisation of around 2.4 times at December 2023 pre-merger.
Davy Research expects this to fall to around 2.1 times net debt versus Ebitda at December 2024, including USD400 million in synergies and USD235 million in cash costs.
The new company will have Smurfit Kappa Chair Irial Finan as its new chair and Smurfit Chief Executive Tony Smurfit as its new CEO. Smurfit Kappa Chief Financial Officer Ken Bowles will also become CFO of the new company.
The board will be made up of six Smurfit directors and eight WestRock directors. It will operate 67 mills, employing 100,000 people.
"This incredibly exciting coming together of our two great companies is a defining moment within the global packaging industry. Smurfit WestRock will be the 'go-to' packaging partner of choice for customers, employees and shareholders," said Tony Smurfit.
"We will have the leading assets, a unique global footprint in both paper and corrugated, a superb consumer and specialty packaging business, significant synergies, and enhanced scale to deliver value in the short, medium and long term."
Davy Research analyst Justin Jordan noted that executive structure of the newly-formed company will see the existing WestRock CEO and CFO depart as part of the transaction.
The merger is expected to deliver "high single digit accretion to Smurfit Kappa's earnings per share on a pre-synergy basis and in excess of 20% including run-rate synergies by the end of the first full year following completion", Jordan added.
By Greg Rosenvinge, Alliance News reporter
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