The CEO of Smurfit Kappa, a leading paper and packaging group, has justified the decision to move the company’s primary listing to New York as part of its merger with U.S. competitor WestRock, stating that he anticipates a higher valuation for the combined entity on Wall Street.
Dublin-based Smurfit Kappa is set to abandon its main listing in London and exit the FTSE 100 index, opting instead for New York, where WestRock’s shares are already traded.
This merger occurs as the benefits of the pandemic-driven e-commerce boom wane, leading to a decline in the shares of Smurfit, WestRock, and competitor International Paper from their 2021 highs.
“We want to move towards a market that offers more liquidity and higher valuations,” said Tony Smurfit, who will serve as CEO of the merged entity, to be named Smurfit WestRock.
“And if we’re the best, which I believe we will be, over time, we will achieve a significantly higher valuation than we currently have, which will naturally result in substantial value creation for our shareholders,” he added.
This decision highlights the challenges facing the London market, which in the past year has missed out on the initial public offering of UK chip designer Arm and has experienced a significant slowdown in listings. Smurfit WestRock will maintain a standard listing in London.
According to the terms of the deal announced on Tuesday, Smurfit shareholders will hold 50.4% of the combined company, while WestRock investors will own the remaining 49.6%.
The deal values each WestRock share at $43.51, representing a 28% premium to the stock’s closing price on Monday and a 36% premium compared to its trading price before the companies disclosed last week that they were in negotiations.
Smurfit’s shares dropped by 8% on Tuesday, with analysts at JPMorgan noting that investors had anticipated a smaller premium. Meanwhile, WestRock shares rose by 4% in New York.
Tony Smurfit, who has led the Irish group since 2015, dismissed concerns about the drop in share price, stating, “When people understand the transaction and see the potential benefits, I believe the share price will recover strongly.”
“We believe that together, we’ll be much stronger. And so, there’s a cost associated with that,” he added. Smurfit WestRock is expected to become the world’s largest packaging company by revenue, surpassing International Paper.
The two companies initiated discussions eight months ago after WestRock approached Smurfit about a potential deal, which was not pursued at the time.
David Sewell, CEO of WestRock, stated that the merger would create a “truly comprehensive offering of packaging solutions for customers and deliver meaningful value to our shareholders both now and in the future.”
Smurfit and WestRock, headquartered in Atlanta, anticipate achieving $400 million in synergies within the first year following the completion of the deal.
The merger “places 65% of our business in the Americas, which justifies our decision to be in the United States,” Smurfit said. “If you have only a small presence in the U.S., I don’t think a listing there makes sense,” he added regarding the listing decision.
Despite the post-pandemic downturn, Smurfit remains optimistic about the future of the paper and packaging industry.
“I believe the corrugated packaging business and the specialty consumer business have a bright future… the replacement of plastic products in an increasingly sustainable world will be driven by our products,” he concluded.
