Britain’s leading cardboard box maker DS Smith is going for a second major acquisition in less than a year as it announced plans to snap up rival Europac for £1.7billion.
The proposed acquisition would help DS Smith expand into Western Europe, since Europac’s business is concentrated in Spain, Portugal and France.
DS Smith, which counts Amazon, Asos and Next among its customers, is offering €16.80 euros (£14.68) per Europac share, valuing the company at about €1.9billion (£1.7billion).
This follow last summer’s acquisition of an 80 per cent stake in the US group Interstate, plus last month’s completion of a deal to buy a smaller US packaging firm – CCC.
London-based DS Smith is to acquire Spanish rival Europac
It also comes as DS Smith’s biggest rival Smurfit Kappa, which is Europe’s largest cardboard box maker, is fending off a takeover approach from US rival International Paper.
London-based DS Smith, which produces millions of tons of cardboard and plastic packaging a year, joined the FTSE 100 at the end of last year.
The company has benefited from the rise in internet shopping, which requires six times more packaging than High Street stores – according to Miles Roberts, DS Smith’s chief executive.
Roberts previously said his firm was also benefiting from the rising demand for recyclable boxes.
Shares in the DS Smith hit an all-time high this morning, rising 3.2 per cent, or 18p, to 580.4p and making it one of the biggest risers on the UK bluechip index.
DS Smith said it intends to finance the deal through the issuance of new shares , plus a new debt facility of €740million. The deal is expected to lead to synergy savings of €50million per year.
Europac, which is 42 per cent family owned and listed on the Spanish stock exchange, reported revenues of around £756million in 2017, with underlying earnings of £138million.
The board of Europac said it sees the acquisition as ‘friendly and attractive’, with the deal expected to close during the fourth quarter subject to regulatory approvals.
The takeover will also require shareholder backing.
Internet shopping boost: DS Smith counts Amazon, Asos and Next among its customers
DS Smith chief executive Miles Roberts said the acquisition of Europac would strengthen the company’s position as ‘a leading global supplier of sustainable packaging solutions’.
‘This acquisition will enhance our customer offer in Western Europe, a key packaging growth region, and help us meet the rising demand for our high-quality packaging and sustainable products,’ Roberts added.
‘It will also strengthen our global supply chain and means we can serve our, and Europac’s, customers better.’
DS Smith operates in 37 countries and employs around 28,500 people, while Europac employs around 2,300 staff.
David Madden, analyst at CMC Markets said: ‘The two businesses have little overlap in terms of clients, and DS Smith announced its plans to expand in the US. The share price hit an all-time high this morning, and if the bullish move continues it could target 600p.’
Russ Mould, investment director at AJ Bell, commented: ‘On one hand, DS Smith is using its strong position in the market to mop up competitors, increase its position in certain geographies and further strengthen its global supply chain.
‘On the other hand, companies which frequently make acquisitions face various risks including the tough job of successfully integrating businesses, making sure they haven’t overpaid and achieving the synergies first touted when making each acquisition.
‘Chief executive Miles Roberts recently said the packaging industry was ‘an exciting and fast-paced environment’.
Investors will ultimately seek reassurance that DS Smith hasn’t been caught up in this market euphoria and isn’t rushing to make deals without proper due diligence and consideration for how it will create value in the future.’