The UK M&A (mergers and acquisitions) juggernaut rolls on with confirmation today of more consolidation in the paper and packaging sector after DS Smith (SMDS) agreed to a revised bid from rival Mondi (MNDI).

Shares in DS Smith gained 7% to 350p while Mondi shares eased 2% to £13.53.

SUBSTANTIAL SYNERGIES

The two firms revealed they were in talks in early February, when DS Smith stock was trading at around 280p, and today’s all-share deal implies a price of 373p or a 33% premium, creating a group with a market value of around £10 billion.

Under the terms of the deal, Mondi shareholders will own 54% of the merged company and DS Smith shareholders 46%, while Mondi chairman Philip Yea, chief executive Andrew King and chief financial officer Mike Powell will assume the same roles at the new firm.

Combining the two businesses is expected to generate annual cost savings of as much as $400 million according to analysts and will put the merged group on a firmer footing to compete with arch-rival Smurfitt Kappa (SKG) which last year agreed to buy US-based WestRock in an $11 billion deal.

TOUGH MARKET

Demand for packaging of all kinds soared after the pandemic as ecommerce went through the roof, but that bump is well and truly over and online shopping has more or less returned to pre-Covid levels.

In its third-quarter results, DS Smith reported flat like-for-like volumes in the three months to the start of November with an uptick in North America offsetting weakness in Northern Europe.

Tight cost control and the ability to raise prices are crucial in an industry where volumes are key.

DS Smith chief executive Miles Smith flagged his firm’s ‘resilient performance despite tough economic conditions’ and said his focus was on ‘driving operational efficiency and cost control across the group’ in order to meet market expectations for the full year.

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