Mondi and DS Smith seek synergies with merger

Mondi and DS Smith Plc have reached an agreement in principle on the key financial terms for a potential all-share merger that would create a leading European player in sustainable packaging.

Under the proposed deal, Mondi shareholders would own 54% and DS Smith shareholders 46% of the combined entity. Based on Mondi’s share price prior to deal talks, the terms imply a value of 373 pence per DS Smith share – a 33% premium to its undisturbed price.

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DS Smith shares shot up by 7% while Mondi slipped 1.5%.

“Mondi announced a month ago that it was contemplating a bid for DS Smith, to bring two of Europe’s leading packaging businesses together. Last night the two companies announced they had agreed terms that will see the pair merge in an all-share deal where Mondi shareholders will end up owning 54% of the enlarged group and former DS Smith investors holding the balance,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.

“The groups say they can see substantial synergies from combining operations, but bizarrely at such a late stage in a deal’s progression, they have not yet quantified these synergies. That will come later, and in the meantime investors in both companies are left to figure out if they are going to be sufficient to merit DS Smith investors giving up control of the group and Mondi investors roughly halving their exposure to the assets they currently own. This does not look like a deal-making trend that is likely to catch on.”

Mondi said in a release the two companies’ geographical footprint was complimentary and saw cost benefits throughout the supply chain.

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