DS Smith Plc has announced the proposed acquisition of the packaging division of Svenska Cellulosa Aktiebolaget SCA (publ) excluding the kraftliner assets for a net consideration of approximately €1.6 billion (c. £1.3 billion). The gross price will be €1.7 billion on a cash, debt and, to the extent legally possible and commercially practicable, pension free basis and approximately €1.6 billion on a net basis after taking into account a pension price adjustment. DS Smith proposes to finance the Acquisition with existing and additional debt and a fully underwritten Rights Issue of 9 New Ordinary Shares for every 8 Existing Ordinary Shares at 95 pence each to raise a total of approximately £466 million.

SCA Packaging is the second largest packaging business in Europe and the Acquisition represents a significant opportunity for DS Smith to achieve its stated strategic aim of becoming the leading supplier of recycled packaging for consumer goods in Europe.

The Board of DS Smith believes that the Acquisition, if completed, will add value for DS Smith Shareholders by: • providing access to new geographical markets across continental Europe that better matches the location and scale of key pan-European FMCG customers, given the complementary geographic business and customer fit between the two businesses; • developing broader relationships with existing customers as well as the potential to win new customers through increased ability to supply and innovate new products and improve service levels; • driving further benefits from the Enlarged Group’s operational structure, utilising the strengthened resource in key commercial and operational functions of DS Smith’s business; • delivering estimated annualised pre-tax cost synergies from procurement and operational efficiencies of at least €75 million per annum and cumulative capital expenditure and working capital benefits of at least €40 million by the end of the third full financial year following Completion; • offering an expected return on capital above DS Smith’s weighted average cost of capital for the first full financial year of ownership with further improvement in the second and third full financial years; • substantially enhancing DS Smith’s EPS2; • utilising a prudent financial structure for the Acquisition with net debt to EBITDA targeted to be back at 2.0x by the end of the first full financial year following Completion. The Rights Issue is fully underwritten and will raise approximately £466 million (gross). Shareholders have already committed to sub-underwrite more than 50.0% of the Rights Issue. Shareholders have shown DS Smith their support for the Acquisition and Standard Life Investments Ltd, the Company’s largest shareholder, has confirmed that it is fully supportive of the Acquisition and the accompanying Rights Issue. Standard Life Investments Ltd currently holds 63,796,896 shares in the Company representing 14.6% of the issued share capital.
Owing to its size, the Acquisition constitutes a reverse takeover under the Listing Rules and upon Completion the listing of the Ordinary Shares will be cancelled pursuant to the Listing Rules. Application will be made to the UKLA and the London Stock Exchange for the Ordinary Shares in the Enlarged Group to be re-admitted to listing on the premium segment of the Official List and to trading on the main market of the London Stock Exchange, respectively. The Acquisition requires approval from Shareholders, and accordingly a General Meeting will be convened for 3 February 2012. The Acquisition will also require, amongst other matters, certain regulatory clearances. It is currently expected that the Acquisition will complete during the second quarter of calendar 2012.
The Acquisition includes a formal offer to acquire the French Business which may be accepted following Works Council consultation.
Commenting on the Acquisition, DS Smith's Group Chief Executive, Miles Roberts said: “This Acquisition builds on DS Smith’s proven strategy and the successful acquisition of Otor. This is an exceptional opportunity to create value for shareholders by becoming the leading recycled packaging company across Europe – a company that will be better positioned to deliver even better service and innovation to our strong and growing FMCG customer base. SCA Packaging is a well invested business with long positions in recycling and packaging and short paper capacity that is very complementary to our strengths. It is a great step in DS Smith’s development and I look forward to working together with the team at SCA Packaging to create an outstanding supplier for our customers and making it a fulfilling place for our staff to work to deliver substantial value for our customers and Shareholders.”
DS Smith's Chairman, Gareth Davis said: “This Acquisition is a unique opportunity, offering the combination of a clear strategic rationale, potentially excellent financial returns and a step change in DS Smith’s capabilities to deliver the recycled packaging service that our customers increasingly want on a pan-European basis. We recognise both the opportunities and the challenges that the Acquisition will bring and we have planned and invested accordingly. We are focussed and determined to integrate, develop and grow these two excellent businesses as the platform for delivering superior returns for our investors over the years to come. ”
The full text of the proposed acquisition announcement, together with appendices can be read at www.dssmith.uk.com