Shares in Smurfit Kappa Group plc (LSE:SKG) fell over 8% after it confirmed a merger had been agreed with WestRock Co (NYSE:WRK) to create a US$34 billion-revenue packaging giant.
Some analysts said clients were "mixed", with some feeling angst about the potential size of the deal premium, and potential synergies being "too low", among other issues.
Today, Dublin-headquartered Smurfit and Atlanta-based Westrock confirmed that a "definitive agreement" had been signed, with shareholders of WestRock to receive one new share of the combined Smurfit WestRock and US$5 in cash, ie US$43.51 per WestRock share, a 36% premium on Monday's closing price of Smurfit Kappa of 3,068p.
With the deal expected to close in the second quarter of 2024, Smurfit Kappa shareholders will receive one new share for each current one they own in the FTSE 100-listed company and so will own 50.4% of the combined company with WestRock's 49.6%.
Smurfit WestRock will be domiciled in Ireland, with its primary listing on the New York Stock Exchange and a standard listing in London. The Dublin company's current chief executive and chair, Tony Smurfit and Irial Finan, will keep their existing roles at the combined company.
On the expected 'synergies' from combining, the companies said they are eyeing "high single digit" improvement to Smurfit Kappa’s earnings per share on and "in excess of 20% including run-rate synergies by the end of first full year following completion".
In a note published early on Tuesday before the confirmation was released, Barclays said clients had given "mixed feedback", with clients worries including the size of the deal premium, scepticism about US expansion, the size of the deal, and potential synergies being "too low".
The bank modelled a bid consideration of US$38 per share, some way below the US$43.5 that was later confirmed.
But after the deals were shared, the Barclays analysts said: "While any M&A is complex and execution is key, and acquiring assets in a cyclical business in a downcycle isn’t straightforward, we think this deal would likely create significant value for Smurfit shareholders."
They added that they believe Smurfit "is being conservative with achievable synergies".
Market analyst Neil Wilson noted that the deal "plays into the ongoing problems facing London’s best companies and the drip-drip loss to Wall Street".
He noted that a shift to a New York listing should see a treating, with US peers trading on a higher multiple in general, with WestRock currently the cheapest thanks to some hefty debt.
"It may be a timely move by SKG underlines the problems facing London’s valuation crisis," Wilson said.