Mondi has confirmed plans to acquire rival DS Smith in a £5.1billion deal that would create a European packaging heavyweight.
The Surrey-based company’s £3.73 per share offer for its rival, a major supplier to retail behemoth Amazon, represents a 33 per cent premium to DS Smith’s closing share price on Thursday.
Mondi shareholders will retain a 54 per cent stake in the enlarged business, should the deal go ahead, with DS Smith investors holding the remaining 46 per cent.
Prospective takeover: Mondi confirmed it plans to acquire DS Smith in a £5.1billion deal that would create a European packaging heavyweight
Chairman Philip Yea, chief executive Andrew King and finance boss Mike Powell will remain in their respective posts, while three DS Smith non-executive directors will join the Mondi board.
Last month, the two firms acknowledged they were engaged in the ‘early stages’ of discussing a possible tie-up, which would establish a paper and packaging business with a market value exceeding £10billion.
Both companies saw sales boom during 2020 and 2021 when Covid-related curbs forced many shops to temporarily close, driving a surge in online retail orders and parcel deliveries.
But since pandemic curbs were lifted, e-commerce trade has slowed significantly as consumers have returned to more traditional shopping patterns and been affected by rising cost-of-living pressures.
This has led to weaker packaging volumes at DS Smith and Mondi, which have also been impacted by higher raw material, energy and labour costs.
Mondi reported revenue declined by 18 per cent to £7.33billion last year, while pre-tax profits plummeted by over half to £682million.
Earlier this week, DS Smith revealed that corrugated box volumes since November had flatlined amid weaker demand in Northern Europe.
In a joint statement released after market close on Thursday, the two businesses said a takeover would lead to ‘substantial synergies’, although they have not yet quantified the value of these synergies.
They told investors the deal would boost their ability to serve customers in the fast-moving consumer goods sector and give them greater ‘exposure to structural growth trends in sustainable packaging’.
Under City takeover rules, Mondi has until 5pm on 4 April to declare a ‘firm intention’ to make an offer or walk away.
Victoria Scholar, head of investment at Interactive Investor, said the deal ‘would allow both to benefit from economies of scale in a competitive sector within in a world that is becoming more and more dependent on Amazon deliveries.’
DS Smith shares were 6.95 per cent higher at 347.8p just before midday on Friday, but Mondi shares were 1.7 per cent down at 1,356.5p.
