DS Smith to buy SCA’s packaging ops for €1.7bn
The takeover, announced this morning, will see the UK-based firm secure all but two kraft mills from SCA in a move that will almost double the number of its plants.
DS Smith hailed the transaction as “an exceptional opportunity” to reach its target of becoming Europe’s leading supplier of recycled packaging for consumer goods after negotiations lasting almost six months.
SCA’s packaging business posted net sales in 2010 of €2.5bn and an operating profit, excluding restructuring costs, reaching €117m. It has a workforce of 12,000.
Headquartered in Sweden, SCA said it considered the packaging business as non-core and had decided to focus on growing its hygiene operations instead.
The firms said they expected the deal to be completed in the second quarter of 2012.
Transformation
DS Smith declared that buyout of 109 corrugated plants across 20 countries from SCA would “transform the scale and breadth of its operations”. The takeover, subject to approval by its shareholders and regulatory authorities, will see its asset base swell to 223 facilities in 20 countries.
The purchase will also dramatically increase DS Smith’s capacity and sales. In the financial year ending 31 December 2010, SCA Packaging sold 3,621 kilotonnes of recycled fibre; 1,383 kilotonnes of corrugated case material (CCM); and had corrugated sales volumes of 3,428 million square metres.
In comparison, in the financial year ending 30 April 2011, DS Smith’s production volumes included 890 kilotonnes of CCM; 1,310 kilotonnes of corrugated board and 1,800 kilotonnes of recycled fibre.
SCA said its French operations, included in the deal, would be subject to an extra round of scrutiny under France’s commercial and employment regulations
Company chief executive Miles Roberts hailed the “complementarity” of the transaction.
“We have fantastic positions in DS Smith but they are mainly in UK and France, whereas SCA packaging have very strong positions in Northern Europe – in Germany, the Netherlands, Switzerland, Eastern Europe as well as up into the Nordics,” he said.
The company said the move would realise estimated annual cost savings of at least €75m and €40m in cumulative capital expenditure and working capital by the end of the third year following the takeover.
Growth prospects
Roberts acknowledged that growth in the short term would be “challenging and difficult” but added that the medium prospects were brighter.
Speaking about the current financial crisis, he said: “The European economy will emerge – it could be one, two or three years – but there will be a return to growth. And think of the position we will have created for ourselves in the industry by combining.”
He characterized DS Smith as a growth company and one with “momentum”.
Integration
The firm said it would use its experience in the wake of the acquisition of French company Otor as a model for integrating SCA.
He said the entities would work together but “only in selected areas” and, because the businesses were complementary, there would be no “wholesale crashing together of companies”.
SCA declared that the main reason for the divestment was to spur growth in its hygiene operations.
“The packaging sector needs to be consolidated in Europe and we are not going to be consolidators”, said company president and CEO Jan Johansson. “We have to focus on areas where we can make a difference and we cannot do that in all our businesses.”
