Smurfit Kappa is likely to ultimately bow to pressure from shareholders and engage with its unwanted suitor International Paper. This could lead to a successful takeover bid after two previous rebuffed proposals, Goodbody Stockbrokers' equities sales team is pitching to clients.
In its latest quarterly stock-picks report, seen by The Irish Times, the sales team warned that there was also the potential for the Memphis-based group to "go hostile" and take its bid directly to shareholders if the Irish cardboard box-making giant continued to refuse to engage.
On March 26th, Smurfit Kappa revealed it had rejected a second bid from International Paper in the space of a month, saying the stock-and-cash offer, valued at the time at €37.54 per share, failed to reflect the group’s “intrinsic value, track record and superior prospects as an independent business”.
A subsequent recovery in the US group’s share price means the bid currently equates to about €38.20 per share, or over €9 billion for Smurfit Kappa’s entire stock.
Smurfit Kappa has insisted that its shareholders would be better served by the company independently pursuing its own €1.6 billion plan to expand its own operations and acquire rivals over the next year years, outlined in early February, a week before the initial bid approach.
Targeted returns
“Assuming management execute perfectly on this capex [capital expenditure] plan, achieving the targeted returns and then valued the company five years out and discounted it back to today, the fair value is circa €40,” the Goodbody sales team said. That equates to a 4.7 per cent premium to the current share price.
“If you also take into account that the industry is at cyclically high returns, margins and valuations, you can see why most investors of SKG [Smurfit Kappa Group] would like the board to start to engage with IP [International Paper],” they said.
International Paper’s last offer, made in late March, included an estimate that the combination of both groups would deliver more than $450 million (€365 million) of cost savings. However, the synergies target – half of which are forecast from outsourcing and supply-chain savings – is not forecast to be reached for four years and will cost some $570 million in restructuring costs to achieve.
