DS Smith's Takeover: A Golden Opportunity for Shareholders?

As a long-time investor in DS Smith Plc (SMDS), I've been keeping a close eye on the proposed takeover by International Paper Company (IP). The all-share offer, announced on 16 April 2024, has left me pondering the potential implications for my investment and the broader packaging industry. In this article, I'll share my thoughts on the deal, the market sentiment reflected in the offer price, and the impact on the industry and competitors.

First, let's take a look at the offer details. DS Smith shareholders will receive 0.1285 new IP shares for each DS Smith share they own, resulting in DS Smith shareholders owning approximately 33.7% of the combined group. The offer values each DS Smith share at 415 pence, based on the closing International Paper share price of $40.85 and the GBP/USD exchange rate of 1.2645 on 25 March 2024. This implies that DS Smith's entire issued and to be issued share capital is valued at approximately £5.8 billion on a fully diluted basis, and its enterprise value at approximately £7.8 billion.

The offer price represents a significant premium for DS Smith shareholders, with a 47.7% premium to the closing price per DS Smith share on 7 February 2024, the last business day prior to the offer period commencement. Additionally, it offers a 42.2% premium to the volume-weighted average closing price per DS Smith share for the three months ended on 7 February 2024, and a 43.0% premium to the volume-weighted average closing price per DS Smith share for the six months ended on 7 February 2024.

However, the current share price of DS Smith (378.00p) is still trading at a 13% discount to the offer price. This discount reflects market sentiment and skepticism about the deal's likelihood of completion. A discount of 10% or less is not unusual in takeover situations, but the 13% discount in this case suggests that investors are somewhat uncertain about the deal's prospects. This could be due to various factors, such as regulatory hurdles, potential antitrust concerns, or the possibility of a counteroffer from another suitor.