DS Smith's Takeover by International Paper: A Path to Sustainable Packaging Leadership

The boards of International Paper Company ("International Paper") and DS Smith Plc ("DS Smith") have announced a recommended all-share combination, creating a global leader in sustainable packaging solutions. This strategic move aims to strengthen both companies' positions in Europe and North America, driving growth and shareholder value. Here's a closer look at the deal and its implications.



The Combination: Terms and Rationale

Under the terms of the combination, DS Smith shareholders will receive 0.1285 new International Paper shares for each DS Smith share, valuing DS Smith's entire issued and to be issued share capital at approximately £5.8 billion on a fully diluted basis. The implied value of £7.8 billion for DS Smith's enterprise value represents a premium of 47.7% to 43.0% compared to various historical price metrics.

The International Paper Board believes the combination would be expected to deliver at least $514 million (£413 million) of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following the effective date. This is expected to increase International Paper's margins and be earnings per share (EPS) accretive in year one, with return on invested capital (ROIC) exceeding the weighted average cost of capital (WACC) by the end of the third year.



The strategic rationale for the combination includes creating a truly global leader in sustainable packaging solutions, strengthening the customer value proposition, optimizing mill networks and supply chains, and driving substantial synergies through global scale and optimization.

Integration and Synergies

International Paper plans to optimize the combined mill network and supply chains to achieve synergies by leveraging the complementary strengths of both companies. This includes combining the expertise of two experienced management teams to accelerate innovative sustainable solutions and products for all customers. Specific cost-cutting measures to reduce freight costs and improve operational efficiency are expected to include optimizing the mill network, supply chain optimization, and combining expertise and innovation.



Sustainable Packaging Focus

The combined company's strategic focus on sustainable packaging solutions is expected to have a positive impact on DS Smith's shareholder value in the long term. By leveraging the combined expertise of both companies, the merged entity will be better positioned to drive innovation and sustainable solutions, leading to potential synergies. This focus on sustainability will resonate with environmentally conscious customers and investors, potentially leading to improved brand reputation, increased customer loyalty, and higher share prices.

In conclusion, the all-share combination of International Paper and DS Smith creates a global leader in sustainable packaging solutions, with industry-leading positions in Europe and North America. The expected synergies, strategic focus on sustainability, and optimization of mill networks and supply chains position the combined company well for long-term growth and shareholder value.