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Mondi confirms possible €11.7B merger with DS Smith as shares spike

#Mondi confirms possible €11.7B merger with DS Smith as shares spike

12 Feb 2024 — Mondi has confirmed it is in the early stages of a possible merger with DS Smith, which estimates show would create a company with a combined value of €11.7 billion (US$12.6 billion). However, while Mondi says the combination is an “exciting opportunity,” a DS Smith announcement emphasizes the idea is “highly preliminary” and that no concrete proposal has yet been made.

The deal, if realized, would create Europe’s biggest containerboard manufacturer. In 2021, Mondi was rumored to be making inroads toward a possible ~US$7 billion deal with its smaller rival, which was never achieved. Mondi has until March 7 to make another formal deal or abandon the idea.

Packaging analyst Neil Farmer says the potential consolidation is expected after the recent confirmation of major mergers between Smurfit Kappa and West Rock and between Berry Global and Glatfelter.

“The industry is going through a period of consolidation and rationalization as major groups look for further growth opportunities. In the case of DS Smith and Mondi, it would create the largest corrugated cardboard manufacturer in Europe with a 13% market share,” he says.

“Both groups are looking for economies of scale and supply chain efficiencies. They both have major consumer goods producers as clients. DS Smith recently renewed its five-year contract as sole supplier of corrugated in Europe with Mondelēz and its huge portfolio of brands. This type of relationship would be attractive going forward, building on DS Smith`s expertise with major consumer goods producers.”

A Mondi production site.Mondi’s strategy
In a statement, Mondi says it “routinely considers various options within its disciplined capital allocation framework aimed at accelerating its growth in the structurally growing packaging sectors in which it operates.”

The company also says it believes a possible merger with DS Smith represents opportunities to become:

  • Well positioned to benefit from structural growth trends in sustainable packaging.
  • To benefit from enhanced vertical integration, bringing with it a balanced paper position, greater earnings resilience through the cycle and enhanced security of paper supply for the benefit of both shareholders and customers.
  • To benefit from substantial synergies from vertical integration alongside highly complementary positions and expertise in containerboard, corrugated solutions and flexible packaging, in addition to expected benefits from economies of scale and efficiencies across a combined supply chain and administration.

“Mondi’s strategy is to deliver value accretive growth and, as noted above, adopts a disciplined approach to acquisitions and investment within its capital allocation framework. Any transaction with DS Smith would be assessed against this framework,” says the company.

Action against plastics
A reaction of further mergers and acquisitions was likely following the Smurfit WestRock deal. Farmer predicted last year when the deal was made.

This reaction is, in part, a natural economic consequence of forming the industry’s largest conglomerate, as competition tightens, but also due to the growing global push to move away from fossil-based plastics.

“Obviously, a reduction in the use of single-use plastics and net zero 2050 targets will spur future market growth in the corrugated and cardboard sector. I’m sure these factors and the high levels of R&D that both companies have will be major considerations in any deal,” says Farmer.

By Louis Gore-Langton

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