DEFM14A: International Paper Recommends Share Issuance for DS Smith Acquisition

International Paper is seeking shareholder approval for a share issuance to facilitate the acquisition of DS Smith Plc in an all-share combination.

Summary

• International Paper (IP) is seeking shareholder approval for a share issuance to acquire DS Smith Plc in an all-share combination.
• Under the proposed deal, DS Smith shareholders will receive 0.1285 new IP shares for each DS Smith share they hold.
• This would result in DS Smith shareholders owning approximately 34.1% of the combined company.
• The acquisition values each DS Smith share at 415 pence based on IP's share price of $40.85 and an exchange rate of $1.2645:1 as of March 25, 2024, representing an aggregate equity value for DS Smith of approximately $7.3341 billion.
• As of September 6, 2024, each DS Smith ordinary share would be valued at 460 pence per share, based on the closing share price and exchange rate as of that date, representing an aggregate equity value for DS Smith of approximately $8.5 billion.
• A special meeting of IP shareholders is scheduled for October 11, 2024, to vote on the share issuance proposal.
• The IP Board of Directors recommends voting FOR the share issuance and a related adjournment proposal.
• The acquisition is expected to close in the fourth quarter of 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the acquisition, highlighting strategic and financial benefits, and includes endorsements from both companies' leadership. However, it also acknowledges potential risks and uncertainties, preventing a higher score.

Positives

• The acquisition creates a global leader in sustainable packaging solutions.
• The combined company will have a stronger presence in both North America and Europe.
• The acquisition is expected to enhance International Paper's profitable growth.
• The combined company is expected to generate at least $514 million in pre-tax cash synergies annually.
• The acquisition is expected to be earnings per share accretive in year one and have a return on invested capital exceeding International Paper's weighted average cost of capital by year three.
• Up to two DS Smith non-executive directors will be invited to join the board of directors of the combined company.

Negatives

• The share issuance will dilute the ownership and voting interests of existing International Paper shareholders.
• The dollar-denominated value of the share consideration will fluctuate with the market value of the shares of Common Stock and the exchange rate.
• International Paper will incur significant integration costs, estimated at approximately $370 million, to achieve synergies.
• If certain conditions or approvals are not met, International Paper may be required to pay a reverse break fee to DS Smith.

Risks

• Failure to realize anticipated benefits and synergies from the acquisition.
• Significant integration costs and potential delays.
• Exposure to currency exchange rate fluctuations.
• Potential unanticipated liabilities.
• Material adverse change to DS Smith's business or prospects prior to closing.
• Restrictions under the Takeover Code limiting International Paper's ability to control DS Smith.
• Volatility in the market price and trading volume of shares of Common Stock following the closing of the Acquisition.
• Fluctuations in the prices of and the demand for the products of International Paper, DS Smith, and, following the closing of the Acquisition, the combined company.
• Changes in the cost or availability of raw materials, energy and transportation.
• Changes in credit ratings issued by nationally recognized statistical rating organizations.
• Risks associated with climate change and other sustainability matters and global, regional and local weather conditions.
• Cybersecurity and information technology risks.
• Changes in international conditions or other risks arising from conducting business internationally.
• Material disruptions at one of International Papers, DS Smiths and/or the combined companys manufacturing facilities.
• Failure to attract and retain qualified personnel, including key management personnel.
• Competition and downward pricing pressure in the global packaging industry.

Future Outlook

International Paper expects the acquisition to close in the fourth quarter of 2024 and to enhance its profitable growth and create a global leader in sustainable packaging solutions.

Management Comments

• Mark S. Sutton, Chairman and Chief Executive Officer of International Paper, stated that combining with DS Smith is a logical next step in International Paper's strategy to drive profitable growth.
• Andrew K. Silvernail, CEO-Elect of International Paper, believes the strategic combination offers a unique and highly compelling opportunity to create tremendous shareholder value.
• Geoff Drabble, Chair of DS Smith, stated that the Board believes the combination with International Paper represents attractive value and creates a strong investment proposition for DS Smith shareholders.
• Miles Roberts, Group Chief Executive of DS Smith, stated that the combination with International Paper is an attractive opportunity to create a truly international sustainable packaging solutions leader.

Industry Context

The announcement reflects ongoing consolidation trends in the global packaging industry, with companies seeking to expand their geographic reach and product offerings to better serve multinational customers and capitalize on growing demand for sustainable packaging solutions.

Comparison to Industry Standards

• The document mentions Smurfit Kappa Group plc and Mondi plc as comparible companies.
• The document mentions the HSR Act, the EU Merger Regulation, the EU Foreign Subsidies Regulation, and the National Security and Investment Act 2021 as global benchmarks.
• The document mentions the Ellen MacArthur Foundation as an industry standard for sustainability.

Stakeholder Impact

• Shareholders of both International Paper and DS Smith are expected to benefit from the combined company's increased scale, diversification, and financial resilience.
• Employees of both companies may experience increased opportunities for training and development, as well as further career path flexibility.
• Customers of both companies are expected to benefit from an increased variety of choices and a superior portfolio of products across two continents.

Next Steps

• International Paper shareholders will vote on the share issuance proposal at a special meeting on October 11, 2024.
• DS Smith shareholders will vote on the scheme of arrangement at a Court Meeting and General Meeting.
• The companies will seek regulatory approvals from the European Commission, U.S. authorities, and UK authorities.
• If approved, the acquisition is expected to close in the fourth quarter of 2024.

Key Dates

Keywords

DS Smith, International Paper, Acquisition, Share Issuance, Packaging, Synergies, Merger, Takeover, Offer, Scheme of Arrangement