DEFA14A: International Paper to Acquire DS Smith in $9.9 Billion All-Stock Deal

International Paper and DS Smith have agreed to a recommended all-share combination, creating a global leader in sustainable packaging solutions valued at approximately $9.9 billion.

Summary

• International Paper (IP) and DS Smith have reached an agreement for IP to acquire DS Smith in an all-stock transaction.
• The deal values each DS Smith share at 415 pence, based on IP's closing share price of $40.85 and a GBP/USD exchange rate of 1.2645 on March 25, 2024.
• DS Smith shareholders will receive 0.1285 new shares of IP common stock for each DS Smith share.
• Following the closing, IP stockholders are expected to own approximately 66.3% and DS Smith shareholders approximately 33.7% of the combined group.
• The combined company will be headquartered in Memphis, Tennessee, with an EMEA headquarters in London.
• Andrew K. Silvernail will be the CEO of the combined company, and Miles Roberts will serve as a consultant.
• The transaction is expected to close in the fourth quarter of 2024, pending shareholder and regulatory approvals.
• IP expects to achieve at least $514 million in pre-tax cash synergies by the end of the fourth year after closing.
• The combination is expected to be EPS accretive in year one and have a return on invested capital exceeding IP's weighted average cost of capital by year three.
• IP also intends to seek a secondary listing of its shares on the London Stock Exchange.

Sentiment

Score: 8

Explanation: The document presents a highly positive outlook on the merger, emphasizing strategic benefits, synergy potential, and value creation. The tone is optimistic and confident, suggesting a strong belief in the success of the combination.

Positives

• The combination creates a global leader in sustainable packaging solutions.
• It strengthens the customer value proposition through enhanced offerings, innovation, and geographic reach.
• The deal is expected to drive substantial and achievable synergies through global scale and optimization.
• It is expected to increase International Paper's margins and be earnings per share (EPS) accretive in year one.
• The combined company is expected to maintain International Paper's current credit rating.

Negatives

• The document mentions a potential headcount reduction of approximately 400 roles across the combined company, primarily in corporate, head office, and senior management positions.

Risks

• The ability of IP and DS Smith to consummate the Business Combination in a timely manner or at all.
• The satisfaction (or waiver) of conditions to the consummation of the Business Combination.
• Adverse effects on the market price of the Companys or DS Smiths operating results, including because of a failure to complete the Business Combination.
• The effect of the announcement or pendency of the Business Combination on the Companys or DS Smiths business relationships, operating results and business generally.
• Future capital expenditures, expenses, revenues, economic performance, synergies, financial conditions, market growth, dividend policy, losses and future prospects.
• Business and management strategies and the expansion and growth of the operations of the Company group or the DS Smith group.
• The effects of government regulation on the business of the Company or the DS Smith group.

Future Outlook

The Combination is expected to close by the fourth quarter of 2024 and is expected to be EPS accretive in year one, with ROIC exceeding IP's WACC by year three.

Management Comments

• Mark S. Sutton (Chairman and CEO of IP) said: Combining with DS Smith is a logical next step in International Papers strategy to drive profitable growth by strengthening our global packaging business.
• Andrew K. Silvernail (CEO-Elect of IP) said: Bringing together the capabilities and expertise of both companies will create a winning position in renewable packaging across Europe, while also enhancing International Papers North American business.
• Miles Roberts (Group Chief Executive of DS Smith) said: The combination with International Paper is an attractive opportunity to create a truly international sustainable packaging solutions leader that is well positioned in attractive and growing markets across Europe and North America.

Industry Context

This announcement reflects the ongoing consolidation trend in the packaging industry, with companies seeking to expand their geographic reach, enhance their product offerings, and achieve cost synergies.

Comparison to Industry Standards

• Comparable transactions in the packaging industry include Smurfit Kappa's acquisition of WestRock, which also aimed to create a global leader in sustainable packaging.
• The expected synergies of at least $514 million are in line with typical synergy targets for large-scale mergers in the industry.
• The all-stock nature of the deal is similar to other recent transactions in the sector, reflecting a focus on maintaining financial flexibility and sharing the benefits of the combination with shareholders.

Management Changes

Stakeholder Impact

• Shareholders of both companies are expected to benefit from the value creation and synergies resulting from the combination.
• Employees of both companies may experience increased opportunities for training, development, and career path flexibility.
• Customers are expected to benefit from enhanced offerings, innovation, and geographic reach.
• Communities in which the combined company operates are expected to benefit from the company's commitment to sustainability and responsible growth.

Next Steps

• Obtain approval from International Paper and DS Smith shareholders.
• Secure necessary regulatory clearances in Europe and the U.S.
• Complete the secondary listing of International Paper shares on the London Stock Exchange.
• Integrate the two companies and achieve the targeted synergies.

Key Dates

Keywords

merger, acquisition, packaging, DS Smith, International Paper, synergies, sustainable packaging, all-stock transaction