The respective boards of Mondi and DS Smith have reached an agreement in principle on the key financial terms of a possible all-share offer by Mondi for DS Smith, pursuant to which Mondi would acquire the entire issued and to be issued share capital of DS Smith.
The combination of the two businesses would create a packaging behemoth, valued in excess of £5 billion. Mondi shareholders would own 54% following any merger, with DS Smith shareholders owning the other 46% of the issued and to be issued share capital of the enlarged Mondi Group.
Mondi stated that the combination of the two businesses presents, ‘an exciting opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions.’ This will be built upon complementary geographic footprints, creating a ‘leading player’ in corrugated packaging across Europe; robust and established customer relationships, including global FMCG brands; leveraging the innovation capabilities of both Mondi and DS Smith; a strong balance sheet and cash flow profile; and the potential to deliver ‘substantial’ benefits to respective shareholders, customers, employees and related stakeholders. Further, increased exposure to structural growth trends in sustainable packaging will be achieved, coupled with strategically located and integrated recycled containerboard production. A complementary portfolio of products will be used to spearhead the shift towards a more circular and sustainable economy, with the enlarged Mondi Group reinforcing its commitment to sustainability in packaging.
In terms of the merged entity’s production capabilities, the benefits are noted as: enhanced vertical integration, equating to a more balanced paper position; cost efficient operation of virgin containerboard mills; and a well-located converting network, focused on delivering innovative solutions for customers.
Mondi’s global flexible packaging position will also be strengthened by such a merger, through the synergies expected to result from vertical integration alongside the businesses and their highly complementary positions and expertise. Additional synergies and benefits are anticipated from enhanced economies of scale and efficiencies across a combined supply chain and administration. Mondi and DS Smith are currently undertaking an exercise to validate the quantity of synergies that they believe will arise from the combination.
Leading the enlarged Mondi Group is to be Philip Yea as chair, Andrew King as CEO and CFO Mike Powell. Messrs Yea, King and Powell already occupy such roles within Mondi’s existing management structure. Three non-executive directors for DS Smith are expected to join the enlarged Mondi Group board.
