IP update on its offer for DS Smith

International Paper has provided an update on its possible offer for DS Smith, pursuant to which International Paper would acquire the entire issued and to be issued share capital of DS Smith.

International Paper confirms that significant progress has been made in reciprocal due diligence as facilitated by the DS Smith Board and Management, and that it is now in a position to provide shareholders with more detail on the type and quantum of synergies it believes would arise from the Combination.

Corrugated packaging solutions is a core component of DS Smith’s business. Due diligence has confirmed International Paper’s belief that the Combination will significantly strengthen the combined packaging business and customer offerings – with packaging representing 84% of International Paper’s current sales, approximately $1.5 bn (£1.2 bn) of which is driven from European sales.

Mark Sutton, Chairman and CEO of International Paper, said, “Bringing International Paper together with DS Smith is a logical next step in International Paper’s strategy to create value by strengthening our packaging businesses in North America and Europe. By combining the strengths of both companies, we believe we can enhance our offering of sustainable packaging solutions for customers in attractive and growing markets.”

Also commenting, the CEO-Elect of International Paper, Andy Silvernail, said, “Upon being selected as the next CEO, International Paper engaged me in an advisory role that allowed me to have discussions with Mark and the Board regarding this strategic proposal. I am fully aligned with their views and supportive of the opportunity. I believe the combination of International Paper and DS Smith would create a winning position in renewable packaging and would be a strong catalyst to drive profitable growth and create value. I am highly committed to delivering the expected synergies associated with this opportunity as well as the other profit improvement initiatives in place throughout the Combined Group.”

The International Paper Board continues to consider M&A in a disciplined manner and believes an acquisition of DS Smith is aligned with International Paper’s strategy to enhance its corrugated packaging business in Europe and would create significant value for both DS Smith and International Paper shareholders.

International Paper expects that the Combination will generate significant synergies and drive compelling value creation for DS Smith and International Paper shareholders. The delivery of the synergies will be supported by International Paper’s significant expertise in acquiring and integrating businesses. In addition, International Paper’s confidence in delivering a successful integration is underpinned by DS Smith’s own expertise in acquiring businesses and integrating them.

International Paper’s Directors, along with its outside adviser, Merrill Lynch International, have reviewed and analysed the potential synergies of the Combination. The potential synergies have subsequently been independently validated and sensitised as part of a Quantified Financial Benefits Statement under Rule 28.1(a) of the Code. Taking into account the factors they can influence, the Directors believe that the combined International Paper and DS Smith group can deliver at least $514m (£407m) of pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following completion of the Combination.

International Paper anticipates that the total costs to achieve the synergies outlined above would be approximately $370m (£293m). International Paper expects that approximately 33% of the synergies outlined above would be achieved by the end of the first year following Completion, with approximately 66% and 95% achieved by the end of the second and third years following Completion, all on a run-rate basis, respectively.

Aside from the one-­off costs referred to above, the International Paper Board does not expect any material dis­synergies to arise as a direct result of the Combination.

The International Paper Board believes these synergies will contribute to significant value creation for both DS Smith and International Paper shareholders.

As part of the Combination, International Paper envisages that DS Smith’s North American manufacturing locations and International Paper’s European manufacturing locations would continue their respective operations. Though it is intended that the Combined Group would be headquartered and domiciled in Memphis, Tennessee, USA, at International Paper’s existing headquarters, International Paper intends to maintain key elements of DS Smith’s headquarters functions and is proposing to establish a European headquarters in London, UK, at DS Smith’s existing headquarters.

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