Smurfit Kappa is in talks with WestRock to create a paper and packaging giant

DUBLIN (Reuters) – Irish company Smurfit Kappa said on Thursday it was in discussions to merge with U.S. rival West Rock (WRK.N), in an alliance between two of the world’s largest paper and packaging producers.

The combined entity will be called Smurfit WestRock and will be based in Ireland with its global headquarters in Dublin, Smurfit said in a statement. It will be listed on the New York Stock Exchange.

It did not reveal the potential financial terms of the deal and said that the final terms would be determined in another announcement. It added that any deal would be subject to shareholder approval, due diligence and regulatory approval.

Irish-listed Smurfit Kappa shares fell 2.43 percent by 0840 GMT.

Smurfit, which operates in 22 European countries and 13 countries in South, Central and North America, is the largest paper and packaging producer in Europe. WestRock is the second largest packaging company in the United States

At current market prices, the combined market capitalization of the two companies would be approximately $19 billion. It generated a combined revenue of $34 billion in the 12 months through the end of June.

The combined entity, which will have about 100,000 employees, could achieve pre-tax cost savings of more than $400 million on an annualized run rate basis at the end of the first year after the deal closes, Smurfit said.

It added that the merger would require one-time cash costs of about $235 million.

The deal will provide “complementary portfolios with unique product diversity and innovative sustainability capabilities, with breadth and depth across renewable, recyclable and biodegradable packaging solutions,” Smurfit’s statement said.

Covid hangover

The Irish company benefited from a boom in demand for packaging goods and e-commerce during the coronavirus lockdowns, but suffered a setback when economies reopened and producers began reducing packaging inventories.

Last month, it announced a decline in first-half underlying profits as it struggled to offset a decline in volumes year-on-year.

WestRock beat Wall Street expectations for third-quarter earnings and said it remains focused on simplifying its portfolio and further cutting costs.

Smurfit said the merger, which was first reported by The Wall Street Journal, would be executed through an Irish arrangement scheme involving Smurfit Kappa and merging a subsidiary with WestRock.

WestRock shareholders will receive compensation consisting primarily of shares of the combined entity.

The statement said that Smurfit will delist on Euronext Dublin and cancel its premium listing on the London Stock Exchange under the deal. Its North and South American operations will be headquartered in Atlanta, Georgia.

($1 = 0.9326 euros)

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