The boss of packaging behemoth DS Smith has doubled down on the company's commitment to its £5.8billion merger with an American competitor, despite rumours that the deal might be in jeopardy.
DS Smith, which boasts big-name clients like Amazon and Unilever, agreed an all-share acquisition by Memphis-headquartered International Paper back in April, a move that would hand its investors a 33.7% stake in the enlarged entity. Under the terms of the deal, International Paper will chase a secondary listing on the London Stock Exchange post-merger, pegging each DS Smith share at 415p.
But International Paper is now reportedly fending off a possible 15 billion US dollar (£11.8 billion) takeover bid from Brazilian pulp and paper company Suzano. It is thought Suzano’s potential offer is contingent on the DS Smith deal being abandoned.
Miles Roberts, DS Smith's chief executive, said he is aware of the rumoured bid interest in its buyer. He's adamant that both parties are "working very diligently on bringing the businesses together".
Roberts confirms they're going ahead with plans to dispatch deal documents to shareholders come August, setting the stage for a decisive vote in September. "That hasn't changed at all," he asserted. "Time will tell. We remain optimistic about the opportunities going forward."
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The comments came as DS Smith revealed annual profits falling by nearly a quarter, but it said sales are beginning to recover and it expects a boost from a surging paper prices. The FTSE 100 group reported a drop of 23% in pre-tax profits to £503million for the year up until April 30, as revenues plummeted by 16% to a total of £6.8billion.
This comes after a challenging period for the sector, which experienced a temporary boost in packaging demand during the peak periods of Covid due to a surge in online sales. However, this high demand has deflated post-pandemic as consumer demand dipped amidst escalating inflation.
Nevertheless, the company noted that demand began to recover towards the end of its financial year, with an improvement in like-for-like sales volume by 2% seen in its final quarter. In addition, DS Smith confirmed that these "positive trends" have rolled into the new financial year and anticipates an increase in packaging prices which will support its second half of 2024-25.
Matt Britzman, equity analyst at Hargreaves Lansdown, remarked: "This was always going to be a challenging set of results for packaging giant DS Smith. The paper and packaging market hasn't been kind. A mix of lower prices and soft user demand has hit the top line hard."
He added: "The good news is that the outlook is improving, and trends toward the end of the year pointed to volume growth and the potential for price tailwinds later in the new year. Takeover talk is driving the stock and will continue to do so unless there's a material change to the current deal with International Paper Company. But with the suitor subject to its own takeover speculation, there is reason to be cautious."
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