Smurfit Kappa Group, a prominent FTSE 100 company, has confirmed that discussions are underway between the boards of directors of Smurfit Kappa and WestRock Company, an esteemed S&P 500 company. These discussions center around the key terms of a potential merger aimed at establishing a new entity named Smurfit WestRock. This combined entity would emerge as a global leader in sustainable packaging.

The envisioned merger is anticipated to involve the formation of a new holding company, Smurfit WestRock. This entity would be incorporated and domiciled in Ireland, with its global headquarters situated in Dublin, Ireland. Additionally, its North and South American operations would have their headquarters based in Atlanta, Georgia. The merger would be executed through an Irish scheme of arrangement involving Smurfit Kappa and a merger of a subsidiary with WestRock.

Under the terms of this potential merger, WestRock shareholders would receive consideration primarily in the form of shares in the newly formed combined group.

Strategic and Operational Rationale:

The boards of Smurfit Kappa and WestRock envision that this potential merger would establish Smurfit WestRock as the preferred global partner for sustainable packaging, characterized by:

• Integration of Complementary Portfolios: Combining two highly complementary portfolios to create a global leader in sustainable packaging.
• Extensive Geographic Presence: An unparalleled geographic footprint spanning 42 countries, with a significant presence in both Europe and the Americas.
• Diverse Sustainable Solutions: Complementary portfolios boasting unique product diversity and innovative sustainability capabilities, encompassing renewable, recyclable, and biodegradable packaging solutions.
• Customer-Centric Approach: A shared cultural alignment with a strong focus on customer satisfaction.
• Opportunities for Workforce: Enhanced opportunities for approximately 100,000 employees.
• Operational Efficiency: Improved operating efficiency and increased returns across a network of over 500 converting operations and 67 mills.
• Sustainability Commitment: A mutual commitment to sustainability goals for a more environmentally sustainable future.
• Experienced Leadership: Seasoned management teams with proven track records to support global operations.
• Value Creation: Immediate and long-term value creation prospects for both sets of shareholders.

Financial Rationale:

The financial aspects of this potential merger are underpinned by a compelling value proposition, as highlighted by the boards of Smurfit Kappa and WestRock:

• Revenue and Earnings Potential: Combined revenue and adjusted EBITDA for the last twelve months as of June 30, 2023, estimated at approximately $34 billion and $5.5 billion, respectively.
• Strong Cash Flow: Expectation of robust cash flows to support future growth and capital returns.
• Cost Synergies: Targeting annual pre-tax run-rate cost synergies exceeding $400 million by the end of the first full year following completion, with the realization of these synergies expected to involve one-off cash costs of approximately $235 million.
• Shareholder Benefits: Anticipated benefits for Smurfit WestRock shareholders, with the transaction structure providing meaningful participation in the significant upside value potential of Smurfit WestRock.
• Capital Allocation Discipline: Commitment to disciplined capital allocation to enhance operating efficiency and increase returns.
• Credit Rating: Dedication to maintaining a strong investment-grade credit rating.

In summary, the potential merger between Smurfit Kappa and WestRock, leading to the formation of Smurfit WestRock, represents a strategic and financial opportunity to create a global powerhouse in sustainable packaging, delivering value to shareholders while upholding a commitment to sustainability and operational excellence.

Source:smurfitkappa.com

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