Shares in packaging company DS Smith have soared after it agreed to a £5.1 billion takeover by rival Mondi. This massive merger is set to create a paper and packaging giant worth over £10 billion.
Last month, London-based Mondi revealed it was considering making a move for its competitor, which creates packaging for Amazon (NASDAQ: AMZN). This news came about three years after rumours first surfaced about a possible merger between the two firms.
Late on Thursday evening, the companies informed shareholders that they had reached an agreement after talks over the past month. The deal means that Mondi shareholders will own 54 percent of the larger group, with DS Smith’s investors owning the remaining 46 percent.
This represents a value of 373p per DS Smith share, roughly a third higher than its value on February 7, before the discussions were first made public. The companies said this “is an exciting opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions, with complementary geographic footprints, leading customer relationships, a strong balance sheet and cash flow profile, and the potential to deliver substantial benefits to respective shareholders”.
Victoria Scholar, head of investment at Interactive Investor, commented: “The tie-up would allow both to benefit from economies of scale in a competitive sector within a world that is becoming more and more dependent on Amazon deliveries.”
“Just this week, DS Smith signaled that market conditions were challenging with a weak performance in northern Europe in particular.”
“Last year it reduced its package prices to try to spur demand. So perhaps inorganic growth is the best way forward to spur growth and increase its market share.”
DS Smith shares jumped by 6.2 percent on Friday morning as a result. Meanwhile, Mondi shares dipped 1.9 percent.
