Paper Companies Near Big Merger Deal
WestRock, Smurfit Kappa in talks to create company with combined value of roughly $20 billion
WestRock WRK -0.53%decrease; red down pointing triangle is nearing a deal to merge with Europe’s Smurfit Kappa SMFKY -1.75%decrease; red down pointing triangle in a move that would create a global paper and packaging powerhouse worth some $20 billion.
A deal could be announced next week, assuming the talks don’t fall apart, the people said.
Atlanta-based WestRock makes packaging for everything from medicine to pizza and home-and-garden products. The company, which reported sales of $21.3 billion in fiscal 2022, was formed in July 2015 by the merger of MeadWestvaco and RockTenn. It had a market capitalization of about $8.2 billion as of the close of trading Tuesday, its stock down about 9% so far this year. The shares rose about 10% after hours when The Wall Street Journal reported on the possible tie-up with Smurfit, which was worth nearly EUR 10 billion ($10.7 billion).
Dublin-based Smurfit Kappa was founded in 1934 as a maker of cardboard boxes and packaging boxes for the Irish market, according to its website. A merger between Jefferson Smurfit and Dutch rival Kappa Packaging in 2005 gave rise to the company known as Smurfit Kappa today, which makes packages for consumer companies, e-commerce operators and industrial products, and has regional offices in Amsterdam and Miami.
International Paper decided in 2018 not to go ahead with an EUR 8.9 billion proposed offer for Smurfit Kappa, blaming a lack of engagement by the Irish company’s board and management, which rejected several approaches from their industry rival.
Since that time, Smurfit has made several acquisitions, including the purchase of Cartonbox, a folding-carton company located in Mexico, and an agreement to buy Pusa Pack, a bag-in-box packaging plant based in Spain.
A combination would accelerate Smurfit’s expansion in the U.S. and other countries in the Americas. Last year, that effort included acquiring corrugated-packaging plants in Argentina and Brazil, according to the company’s annual report.
WestRock is also no stranger to deals. Its biggest recent transaction was in 2018, when the company acquired KapStone Paper and Packaging for nearly $5 billion. That has contributed to a hefty debt load, which exceeded $10 billion as of June.
A merger could bolster the companies at a time of weakening demand and declining prices for containerboard, the material used to make corrugated shipping boxes and industrial packaging, and a gloomy outlook for the global paper business. It is another sign that the pandemic demand boom is fading.
WestRock earlier this year withdrew its 2023 guidance, instead focusing on quarterly guidance. Chief Executive David Sewell told investors last month that the business was looking to streamline its portfolio and cut costs.
The deal could be the first big post-Labor-Day transaction following a lull for most of 2023. Overall deal activity in the U.S. is down 30% so far this year, according to Dealogic.