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DS Smith doubles in size with £1.3bn SCA Packaging deal
DS Smith chief executive Miles Roberts unveils a 'transformational' acquisition for the FTSE packaging company and Citywire Top Stock.
Last year provided disappointing on the mergers and acquisitions front but 2012 has got off to a cracking start.
Yesterday dairies group Robert Wiseman (RWD.L) agreed to a £280 million bid from German yogurt group Mueller. Today, it was a UK company doing the bidding as DS Smith, the packaging and recycled paper group unveiled a €1.6 billion (£1.35 billion) acquisition of the packaging arm of Sweden’s Svenska Cellulosa Aktiebolaget (SCA).
Shares in DS Smith (SMDS.L) closed 3.2% or 6.5p higher at 210p as analysts hailed the debt and equity funded deal as a ‘landmark’ and ‘transformational’ transaction that would more than double the size of the company.
SCA Packaging is Europe’s second largest packaging and the acquisition gives DS Smith access to 15 countries on the Continent it did not have before, although none, it stressed, in southern Europe.
Stockholm-listed SCA is selling the packaging operations to reinvest in its hygiene business. The division turned over €2.5 billion in 2010 and employs about 12,000 people.
Miles Roberts, DS Smith’s chief executive who has led the group's turnround in the past 18 months, said: ‘This is an exceptional opportunity to create value for shareholders by becoming the leading recycled packaging company across Europe – a company that will be better positioned to deliver even better service to our strong and growing FMCG [fast moving consumer goods] customer base.’
The SCA acquisition builds on the purchase of the Otor Group in 2010, which gave it a big market share of the French recycled corrugated packaging market. At the end of last year DS Smith sold Spicers, its office products wholesale business, for £200 million, considered a good price.
For the new transaction DS Smith plans to raise around £466 million from shareholders with a fully underwritten rights issue that will see 9 new shares created for every 8 held. The new shares will be priced at 95p, a 53% discount to last night’s closing price. The remaining £934 million will come from new and existing bank credit facilities.
House broker JP Morgan Cazenove forecast the deal would increase DS Smith’s earnings per share by 18% in 2013 and by 23% in 2014 and generate at least €75 million in annual savings.
Standard Life, which owns 14.6% of DS Smith shares, has backed the deal. The company is in Citywire Top Stocks because of its top 10 position in the Standard Life Investments UK Equity Unconstrained fund, managed by Edward Legget.
DS Smith said current trading conditions remained broadly in line with the first nine months of its financial year. It said corrugated board prices had stabilised in the fourth quarter although volumes remained subdued in some markets.
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