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International Paper (IP) Inks Deal to Buy DS Smith for $7.4Bn

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International Paper Company (IP - Free Report) has confirmed that it has entered into an agreement to acquire the entire issued share capital of DS Smith (DITHF - Free Report) . This marks a strategic move to strengthen its corrugated packaging business in Europe and prioritize sustainable packaging. The buyout is expected to be accretive to IP’s earnings in the first year of closure and provide at least $514 million of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the close.

The offer values DS Smith's entire issued and to-be-issued share capital at around £5.8 billion ($7.4 billion) on a fully diluted basis and DS Smith's enterprise value at approximately £7.8 billion ($9.9 billion).

International Paper had previously proposed an all-equity acquisition of DS Smith in March 2024, triggering speculation of a potential bidding contest as rival Mondi Plc (MONDY - Free Report) had expressed interest in acquiring DS Smith for £5.1 billion in February 2024.

IP's higher bid has led DS Smith’s board to accept the offer. Per the terms of the finalized deal, DS Smith shareholders would receive 0.1285 shares in International Paper for each DS Smith share held. This will result in DS Smith shareholders owning approximately 33.7% of the combined entity, and the remaining 66.3% will be held by International Paper’s shareholders.

The terms of the deal value each DS Smith share at £4.15 based on the closing International Paper share price of $40.85 and £/USD exchange rate of 1.2645 on Mar 25, 2024,  the close of business on the day before the announcement by the parties of an offer.

DS Smith is a leading provider of sustainable packaging solutions, paper products and recycling services worldwide. It has a workforce of around 30,000 people in more than 30 countries.

The deal is expected to close by the fourth quarter of 2024. The combination of International Paper and DS Smith will establish a global leader in sustainable packaging solutions that is well-positioned in attractive and growing markets. It will have a significantly stronger corrugated packaging business in Europe equipped with broader customer offerings.

The combined company will have a pro forma 2023 integrated revenues of approximately $28.2 billion and a combined adjusted EBITDA of approximately $4.1 billion.

The combination will create the opportunity to integrate both the companies’ mill and box networks and optimize the supply chains in Europe and the United States. It will leverage the market expertise of two experienced and innovative management teams to enhance innovation, solutions and sustainability products for customers.

The merger is expected to drive significant synergies, including higher integration, commercial and operational improvements, and economies of scale across sourcing, supply chain and administration.

Price Performance

International Paper’s shares have lost 1.6% in the past year against the industry’s 26.6% increase.

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Zacks Rank & Other Stock to Consider

International Paper currently carries a Zacks Rank #2 (Buy).

Another top-ranked stock in the basic materials space worth considering is Ecolab Inc. (ECL - Free Report) , which carries a Zacks Rank of 2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Ecolab’s 2024 earnings is pegged at $6.39 per share, indicating an increase of 22.7% from the prior year’s reported number. It has an average trailing four-quarter earnings surprise of 1.7%. ECL shares have gained 34% in a year.

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