Mondi and DS Smith reach agreement in principle
Mondi and DS Smith have reached an agreement in principle after Mondi issued an all share offer to DS Smith
Friday, 08 Mar 2024 16:59 GMT
The Boards of Mondi and DS Smith have reached an agreement in principle
The Boards of Mondi and DS Smith have reached an agreement in principle after Mondi made an all share offer for DS Smith in a deal said to be worth over £5bn.
According to a statement released yesterday (March 7th), proceeding with the deal is conditional on “reaching an agreement on the other terms and conditions of any offer, including as to regulatory matters and the completion of mutual confirmatory due diligence to the satisfaction of Mondi and DS Smith”.
If the deal, referred to in the statement as the ‘Combination’ is to go ahead, Mondi shareholders would own 54% and DS Smith shareholders would own 46% of the issued and to be issued share capital of Mondi.
With Mondi’s closing share price sitting at 1,381p per share on the day before the offer period started (February 7th), the terms of the combination would represent an implied value of 373p per DS Smith share and a premium of 33% to DS Smith’s closing share price of 281p per share on the same day.
In addition, Philip Yea would be Chair, Andrew King would be CEO, and Mike Powell would be the CFO of the newly enlarged Mondi Group. Three non-executive directors of DS Smith are also expected to join the enlarged Mondi Group Board.
Key Benefits
Key benefits of the Combination include increased exposure to structural growth trends in sustainable packaging; a “highly complementary” geographical footprint resulting in a leading player in corrugated packaging across Europe; and a strengthened ability to serve global FMCG customers.
What’s more, the combination of both Mondi’s and DS Smith’s strengths in the corrugated value chain is predicted to result in cost-efficient virgin containerboard mills, a “market leading, well located” converting network, and strategically located and integrated recycled containerboard production.
Several Synergies
The Combination would create an industry leader in Europe within the packaging sphere with several synergies expected to be created as a result.
On this, the statement reads: “In reaching agreement in principle on key terms, both Boards have taken into account the substantial synergies which they believe would arise from combining two pan-European companies, and the consequent significant added value which should accrue to shareholders in the Combination.
“These synergies are expected to result from vertical integration alongside highly complementary positions and expertise in containerboard, corrugated solutions, and flexible packaging, as well as expected benefits from economies of scale and efficiencies across a combined supply chain and administration.”
Conversations in Progress
Following reaching an agreement in principle, Mondi and DS Smith are currently working to validate the quantity of synergies that they believe will arise from the Combination and both companies intend to publish the results of this together with the reports required under the [Takeover] Code “in due course”.
In accordance with Rule 2.6(a) of the [Takeover] Code, Mondi was required to either announce a firm intention to make an offer for DS Smith by no later than 5pm on March 7th, 2024, in accordance with Rule 2.7 of the Code, or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies.
Extension Granted
In accordance with Rule 2.6(c) of the Code, the DS Smith Board has requested that the Panel on Takeovers and Mergers extends the relevant deadline to enable discussions to continue regarding the Combination.
An extension has subsequently been granted by the Panel and Mondi must, by no later than 5pm on April 4th, 2024, either announce a firm intention to make an offer for DS Smith in accordance with Rule 2.7 of the Code or announce that it does not intent to make an offer for DS Smith, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies.
The statement ends with the caveat: “There can be no certainty that any firm offer will be made”.
In response to the news, investment banking group, Jefferies, says it estimates a synergy target of €300m (£255m) and believes that the 373p (0.270 share ratio) is “a fair valuation” for shareholders of both companies.
However, the company predicts there is likely to be “investor pushback from both sides” and says investor calls since the announcement have focused mainly on “the strategic rationale, potential synergies, why now, and what price it might be appropriate”.
If you have any news, please email carys@linkpublishing.co.uk or join in with the conversation on Twitter and LinkedIn.
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