Dublin (News release) - Following the announcement of a possible combination dated 7 September 2023 ("Possible Combination Announcement"), the Boards of Smurfit Kappa, a FTSE 100 company, and WestRock, an S&P 500 company, are pleased to announce the signing of a definitive transaction agreement (the "Agreement") to create Smurfit WestRock, a global leader in sustainable packaging (the "Combination" or the "Transaction").
The Boards of Smurfit Kappa and WestRock see compelling strategic, commercial and financial rationale for combining Smurfit Kappa and WestRock's highly complementary paper-based packaging companies to create a global leader in sustainable packaging. The Combination will enhance Smurfit Kappa and WestRock's existing offerings by creating the global "Go-To" packaging partner of choice and bringing together:
- Smurfit Kappa's industry-leading operational execution and innovation as a European leader in corrugated and containerboard as well as its large-scale pan-regional Americas presence that delivers best-in-class performance and returns; and
- WestRock's leadership in the United States as well as its strong footprint in Brazil and Mexico, across corrugated and consumer packaging delivering a broad portfolio of packaging solutions serving diverse, growing end-markets.
Smurfit WestRock will have unparalleled geographic and product diversity with a culturally aligned customer focus and enhanced capabilities to serve customers globally. Together, Smurfit Kappa and WestRock generated combined last twelve months' adjusted annual revenue of approximately $34 billion as of 30 June 2023, which would make Smurfit WestRock the largest listed global packaging partner by revenue.
Terms of the Combination
The Transaction will involve the creation of a new holding company for the combined Smurfit WestRock. Smurfit WestRock will be incorporated and domiciled in Ireland with global headquarters in Dublin, Ireland and its North and South American operations will be headquartered in Atlanta, Georgia. Subject to shareholder approvals, regulatory approvals and other customary closing conditions, the Combination is expected to close in the second quarter of calendar year 2024.
Under the terms of the Agreement, for each share of common stock of WestRock (a "WestRock Share") the common stockholders of WestRock will receive one new Smurfit WestRock share (a "New Share") and $5.00 in cash.
This represents:
- Total consideration to WestRock stockholders equivalent to $43.51 per WestRock Share, based on the closing share price of Smurfit Kappa ordinary shares on 11 September 2023, being the last closing price prior to this announcement (and converted to U.S. Dollars using an exchange rate of 1.075x, being the exchange rate on 11 September 2023); and
- Combining Smurfit Kappa and WestRock on equivalent enterprise value to adjusted EBITDA multiples.
Smurfit Kappa shareholders will receive one New Share for each ordinary share in Smurfit Kappa. Immediately following completion of the Combination, Smurfit Kappa shareholders and WestRock stockholders are expected to own approximately 50.4% and 49.6% of Smurfit WestRock, respectively, based on the current number of shares outstanding of both Smurfit Kappa and WestRock as of the date of this announcement.
Board Recommendations
The Boards of Directors of both Smurfit Kappa and WestRock have unanimously approved the Transaction and resolved to recommend that their respective shareholders vote in favour of the Transaction.
Commenting on the Combination, Tony Smurfit, CEO of Smurfit Kappa, said:
"This incredibly exciting coming together of our two great companies is a defining moment within the global packaging industry. Smurfit WestRock will be the 'Go-To' packaging partner of choice for customers, employees and shareholders. We will have the leading assets, a unique global footprint in both paper and corrugated, a superb consumer and specialty packaging business, significant synergies, and enhanced scale to deliver value in the short, medium and long term."
Commenting on the Combination, David Sewell, CEO of WestRock, said:
"We look forward to working with Smurfit Kappa to build a leading global platform that harnesses the strength of WestRock's consumer portfolio, presents a truly comprehensive offering of packaging solutions for customers and delivers meaningful value to our shareholders today and into the future. Smurfit Kappa shares our deep commitment to innovation across the packaging lifecycle, and we are confident that Smurfit WestRock will continue to lead the industry forward. I'm grateful to WestRock's team members, whose hard work has made this combination possible, and excited for the many opportunities that will arise from becoming part of the partner of choice in our industry."
Commenting on the Combination, Irial Finan, Chair of Smurfit Kappa, said:
"We are very pleased to announce today's combination to create Smurfit WestRock. We believe that all shareholders will benefit through ownership of a world-leading, sustainable packaging business; the combination of two of the industry's most experienced teams with a proven track record of delivery; and, a diverse product portfolio and compelling innovation offering."
Commenting on the Combination, Alan Wilson, Chair of WestRock, said:
"This combination will enable WestRock to advance its key growth initiatives on a global scale while providing our shareholders with the opportunity to participate meaningfully in the combined company's significant upside value potential."
Strategic and Operational Rationale
The Boards of Smurfit Kappa and WestRock believe the Combination will create the global "Go-To" packaging partner of choice:
- Combining two highly complementary portfolios to create a global leader in sustainable packaging
- Unparalleled geographic reach across 42 countries with a significant presence across both Europe and the Americas
- Complementary portfolios with unique product diversity and innovative sustainability capabilities, with breadth and depth across renewable, recyclable and biodegradable packaging solutions
- Culturally aligned with strong customer focus
- Broader opportunities for approximately 100,000 employees
- Improved operating efficiency and increased returns across approximately 500 converting operations and 67 mills
- Shared sustainability ambitions for a sustainable future
- Experienced management teams with strong track records of execution and delivery to support global operations
- Immediate and long-term value creation opportunity for both sets of shareholders
Financial Rationale
The Boards of Smurfit Kappa and WestRock believe the Combination represents a unique opportunity to create value for stakeholders:
- Combined last twelve months' adjusted revenue and adjusted EBITDA as of 30 June 2023 of approximately $34 billion and $5.5 billion, respectively
- Combining Smurfit Kappa and WestRock on equivalent enterprise value to EBITDA multiples
- The Combination is expected to deliver high single digit accretion to Smurfit Kappa's earnings per share on a pre-synergy basis and in excess of 20% including run-rate synergies by the end of the first full year following completion
- Strong cash flows for future growth and capital returns
- Targeting annual pre-tax run-rate synergies in excess of $400 million at the end of the first full year following completion; delivery of synergies expected to require one-off cash costs of approximately $235 million
- Expected to deliver compelling benefits to Smurfit Kappa shareholders and WestRock stockholders, with transaction structure providing the opportunity for both sets of shareholders to participate meaningfully in Smurfit WestRock's significant upside value potential
- Disciplined capital allocation expected to deliver improved operating efficiency and increased returns
- Committed to strong investment grade credit rating
Other Key Transaction Terms
Governance and Management
Smurfit WestRock will bring together the best of both companies' management teams to create a world class leadership team. Smurfit WestRock will be led by Irial Finan as Chair, Tony Smurfit as CEO, with Ken Bowles as CFO.
The Board of Smurfit WestRock will consist of 6 WestRock Directors and 8 Smurfit Kappa Directors, including Irial Finan, Tony Smurfit and Ken Bowles.
Listing Details
Following completion of the Combination:
- Smurfit WestRock's ordinary shares will be listed on the New York Stock Exchange (NYSE) and Smurfit WestRock will seek U.S. equity index inclusion as soon as possible thereafter;
- Smurfit Kappa's ordinary shares will be delisted from the premium segment of the Official List of the UK Financial Conduct Authority (the "FCA") and cancelled from admission to trading on the Main Market of the London Stock Exchange (LSE), and Smurfit Westrock's ordinary shares will be listed on the standard segment of the Official List of the FCA and admitted to trading on the Main Market of the LSE;
- Smurfit Kappa will delist from Euronext Dublin; and
- Smurfit WestRock will be incorporated and domiciled in Ireland with global headquarters in Dublin, Ireland and North and South American operations headquartered in Atlanta, Georgia.
Steps to Completion
The Transaction will be effected through an Irish scheme of arrangement involving Smurfit Kappa, and a merger of a subsidiary with WestRock. Furthermore, given the Transaction is classified as a Reverse Takeover under the Listing Rules of the FCA, the publication by Smurfit Kappa of a shareholder circular, by Smurfit WestRock of a prospectus, and approval of the Transaction by Smurfit Kappa's shareholders are required under the Listing Rules of the FCA. In addition, the Transaction is conditional, inter alia, upon:
- Approval by Smurfit Kappa shareholders of a scheme of arrangement (the "Scheme"), which is required in order to ultimately effect the migration of the settlement system applicable to Smurfit Kappa ordinary shares held electronically from Euroclear Bank to the Depositary Trust Company in connection with the listing of Smurfit WestRock's ordinary shares directly on the NYSE and on the LSE;
- Approval by stockholders of WestRock of the Transaction;
- The FCA having acknowledged (and such acknowledgement having not been withdrawn) that the application for admission of Smurfit WestRock's ordinary shares to the standard segment of the Official List has been approved and will become effective, and the LSE having acknowledged (and such acknowledgement having not been withdrawn) that Smurfit WestRock's ordinary shares will be admitted to trading on the Main Market, subject only to the issuance of Smurfit WestRock shares upon completion of the Transaction;
- The registration statement for the offer of Smurfit WestRock shares being declared effective by the SEC and the New Shares being approved for listing on the NYSE;
- The accuracy (subject to certain materiality standards) of the representations and warranties made by Smurfit Kappa and WestRock in the Agreement and material compliance by both with the covenants contained therein;
- Sanction of the Scheme by the Irish High Court;
- Relevant regulatory approvals being obtained, including in the EU and the U.S.; and
- Other customary closing conditions.
Subject to the satisfaction of the conditions to closing, the Transaction is expected to close in the second quarter of calendar year 2024.
Dividend
Smurfit Kappa shareholders and WestRock stockholders will continue to receive ordinary course dividends until the consummation of the Combination. Smurfit WestRock intends to pay a dividend to Smurfit WestRock stockholders in line with Smurfit Kappa's current attractive dividend policy.
Financing
Smurfit Kappa Treasury Unlimited Company, a wholly-owned subsidiary of Smurfit Kappa, has entered into a commitment letter providing for a committed bridge facility with affiliates of Citigroup Global Markets Limited ("Citi") which includes financing to fund the cash portion of the Transaction. Smurfit Kappa expects any drawings to be refinanced through debt capital markets or other financing sources.
Financial Reporting
Effective from closing, Smurfit WestRock intends to report its financial information in US GAAP with a U.S. Dollar reporting currency.
Settlement
The settlement system applicable to the Company's ordinary shares held electronically shall migrate from Euroclear Bank to the Depositary Trust Company in connection with the listing of the ordinary shares directly on the NYSE.
Transaction Agreement
Smurfit Kappa and WestRock have today entered into a transaction agreement (the "Transaction Agreement"). Under the terms of the Transaction Agreement, at Completion (i) Smurfit WestRock (an Irish-incorporated holding company) will acquire the entire issued share capital of Smurfit Kappa by means of a scheme of arrangement under Section 450 of the Companies Act 2014 of Ireland; and (ii) a subsidiary of Smurfit Westrock ("Merger Sub") shall be merged with and into WestRock (the "Merger"), following which the separate corporate existence of Merger Sub shall cease, with WestRock continuing as the surviving corporation (the "Surviving Corporation"), such that following the Merger, the Surviving Corporation will be a wholly owned subsidiary of Smurfit WestRock.
Under the terms of the Transaction Agreement, for each WestRock Share the common stockholders of WestRock will receive one New Share and $5.00 in cash. From and after Completion, all WestRock Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each applicable holder of WestRock Shares shall cease to have any rights with respect thereto, except the right to receive a New Share and $5.00 in cash, and the aggregate amount of any dividends or other distributions declared by the WestRock Board for such WestRock Shares having a record date before, and which remain unpaid as of, Completion upon surrender of such WestRock Shares, together with any amounts payable under the relevant terms of the Transaction Agreement. All WestRock shares owned by any subsidiary of WestRock, Smurfit Kappa, Merger Sub or any of their respective subsidiaries shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor. Each share of common stock, $0.01 par value, of Merger Sub issued and outstanding immediately prior to Completion shall be automatically converted into and become one fully paid and non-assessable share of common stock of the Surviving Corporation.
Smurfit Kappa shareholders will receive one New Share for each ordinary share in Smurfit Kappa. Immediately following Completion, Smurfit Kappa shareholders and WestRock stockholders are expected to own approximately 50.4% and 49.6% of Smurfit WestRock, respectively, based on the current number of shares outstanding of both Smurfit Kappa and WestRock as of the date of this announcement.
The Transaction Agreement contains representations, warranties, covenants and undertakings given by, and termination rights in favour of, each of WestRock and Smurfit Kappa that are customary for a transaction of this nature. Completion of the Transaction is subject to customary regulatory approvals, including, among others, antitrust approval in the U.S. and the EU. WestRock or Smurfit Kappa have agreed to use their reasonable best efforts to obtain the required regulatory approvals.
The Transaction Agreement also contains customary termination rights. The Transaction Agreement may be terminated if Completion has not occurred on or before 12 September, 2024, provided that such deadline will be extended by up to six months if required regulatory approvals have not yet been obtained. The Extraordinary General Meeting ("EGM") and the Court Meeting ("CM") of Smurfit Kappa shareholders, and the Special Meeting of WestRock stockholders ("SM"), are each expected to be convened in the first half of 2024. If either the board of directors of Smurfit Kappa or WestRock changes its recommendation that Smurfit Kappa shareholders or WestRock stockholders vote in favour of the Transaction respectively, then the other party will be entitled to terminate the Transaction Agreement and, as relevant, Smurfit Kappa will pay a termination amount of $100 million to WestRock, or WestRock will pay a termination amount of $147 million to Smurfit Kappa. This termination amount is also payable if the Transaction Agreement is terminated because Smurfit Kappa or WestRock commit a willful breach of customary non-solicit commitments in relation to alternative transactions (with customary exceptions in the period up to the EGM, CM and SM), or if the Transaction Agreement is terminated in certain circumstances following a competing proposal for at least 50% of either Smurfit Kappa or Westrock and the relevant party consummates or enters into an agreement for a competing proposal within 12 months after such termination. An amount of $50 million is payable by Smurfit Kappa if WestRock terminates after failure by Smurfit Kappa to receive the requisite Transaction approvals at the EGM or CM, and an amount of $57 million is payable by WestRock if Smurfit Kappa terminates after failure by WestRock to receive the requisite Transaction approval at the SM. Any amount referred to in the preceding sentence paid by a party will be credited toward any subsequent termination amount payable by such party. Completion is expected to occur in the second quarter of calendar year 2024.
The summary of the Transaction Agreement set out in this announcement is a summary only and is qualified in its entirety by reference to the full text of the Transaction Agreement, which will be filed with the U.S. Securities and Exchange Commission.
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EARLIER
DUBLIN (From news reports) -- Smurfit Kappa is in discussions to merge with U.S. rival WestRock, the Irish firm said on Thursday, in a tie-up of two of the world's largest paper and packaging producers.
The combined entity would be named Smurfit WestRock and domiciled in Ireland with its global headquarters in Dublin, Smurfit said in a statement. It would be listed on the New York Stock Exchange.
It did not disclose the possible financial terms of a deal and said definitive terms would be set out in a further announcement. Any deal would be subject to shareholder approval, due diligence and regulatory approval, it said.
WestRock shareholders would receive shares in the combined group, Smurfit Kappa said. Smurfit Kappa's Irish-listed shares were down 2.16% at 0900 GMT.
U.S.-listed shares of WestRock rose 6.6% in trading before the bell.
Smurfit, which operates in 22 European countries and 13 in South, Central and North America, is Europe's largest paper and packaging producer. WestRock is the second largest packaging company in the U.S.
At current market prices, the combined market capital of the two firms would be around $19 billion. They had combined revenue of $34 billion in the 12 months to the end of June.
Research analysts at Credit Suisse said the proposed combination had significant strategic and operational merits and strengthens the company's Americas presence, especially in faster-growing Central America.
The merger would be "a good cultural fit" with a strong focus on an innovation-driven expansion of the group's sustainable packaging business, they said in a research note.
The combined entity, which would have around 100,000 employees, could log pre-tax cost savings of more than $400 million on an annual run-rate basis at the end of the first year following the completion of the deal, said Smurfit.
The tie-up would require one-off cash costs of approximately $235 million, it added.
The deal would offer "complementary portfolios with unique product diversity and innovative sustainability capabilities, with breadth and depth across renewable, recyclable and biodegradable packaging solutions", the Smurfit statement said.
COVID HANGOVER
The Irish firm has benefited from a boom in demand for packaging goods and e-commerce during COVID-19 lockdowns, but suffered a setback when economies reopened and producers started cutting back packaging stocks.
Last month it reported a fall in first-half core profit as it struggled to offset a year-on-year decline in volumes.
WestRock beat Wall Street expectations for third-quarter profit and said it remained focused on streamlining its portfolio and further reducing costs.
The merger, which was first reported by The Wall Street Journal, would be effected though an Irish scheme of arrangement involving Smurfit Kappa and a merger of a subsidiary with WestRock, Smurfit said.
Smurfit would de-list from Euronext Dublin and cancel its premium listing on the London Stock Exchange under the deal, the statement said. Its North and South American operations would be headquartered in Atlanta, Georgia.
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