Shares in packaging companies have jumped up after FTSE 100 sector constituent Smurfit Kappa (SKG) received a surprise takeover approach from US-based International Paper.
No details were given as to the value of the approach. Takeover bids are often priced at least 20% above the market price before an approach, to give an incentive for shareholders to accept an offer.
Investec analyst Gerard Moore says the proposal to buy Smurfit could be pitched around the €43 (£38.38) level judging by prices paid by other companies in the sector recently.
The market has bid up shares in Smurfit by 18.2% to £30.04. Other companies in the packaging sector also move higher as investors hope they too may be takeover targets.
Mondi (MNDI) rises 4.5% to £19.91. DS Smith (SMDS) advances 4.2% to 498.65p. RPC (RPC) moves 2.5% higher to 803.6p; and small cap Macfarlane (MACF:AIM) nudges up 0.6% to 85p.
HOW HAS SMURFIT RESPONDED TO THE APPROACH?
Smurfit’s board has rejected the approach, suggesting it doesn’t reflect the group’s true intrinsic value; it undervalues the group’s asset, franchise and replacement value; and is significantly below the valuations set by recent industry transactions.
International Paper is a big player in the North American market. Owning Smurfit would also give it a significant position in Europe and Latin America. As such, Smurfit shareholders will probably want a very large bid premium before they agree to a takeover.
IS THERE A HISTORY OF TAKEOVERS IN THE SECTOR?
‘The packaging sector doesn’t often hit the headlines but it is having a rare moment in the sun thanks to a surprise takeover approach for Smurfit Kappa,’ says AJ Bell investment director Russ Mould.
‘This sector may seem as boring as you can get, however it has had plenty of takeover action in the past. Companies have been acquired to give the buyers more scale and access to more specialty products,’ he adds.
WestRock and DS Smith are among the companies in the sector recently making large acquisitions.
WestRock, the second biggest player in the US after International Paper, struck a deal to buy KapStone for $4.9bn.
DS Smith made its first move into the US market last year with the £722m acquisition of Interstate Resources.
Previous packaging takeovers on the UK stock market include former AIM-quoted Powerflute being bought by Nordic Packaging, and subsequently sold to Mondi. British Polythene Industries was acquired by RPC.
