June 6, 2018 / 7:35 AM / 14 days ago

Smurfit Kappa reaffirms guidance after International Paper drops bid

DUBLIN, June 6 (Reuters) - Smurfit Kappa reaffirmed its guidance on Wednesday that its full year earnings will be materially better than last year after rival International Paper (IP) decided to end its pursuit of the Irish packaging company.

Smurfit twice frustrated a bid to combine the largest listed U.S. paper packaging firm with Europe’s biggest, arguing it was better served pursuing its future independently. IP’s second, raised offer valued the Irish group at 8.9 billion euros ($10.5 billion).

IP walked away on Tuesday, blaming a lack of engagement from Smurfit’s management. Under Irish takeover rules, the Memphis-based group is barred from making a fresh attempt to buy Smurfit for 12 months.

“The board believes that SKG has superior prospects as a standalone business and remains excited about the group’s prospects in the short, medium and long-term,” Smurfit said in a statement, adding that it expected the second quarter to represent another strong performance.

David O’Brien, an analyst at Goodbody Stockbrokers, said that given IP is one of the few packaging companies capable of launching a bid for Smurfit, the Irish group is likely to stay as an independent company for now.

Shares in Smurfit, which fell sharply earlier this week, were 2.3 percent higher at 34 euros by 0720 GMT. The shares hit a high of 37.10 euros during IP’s pursuit but are well up on the 28.60 euros they stood at before the initial bid.

The second bid was pitched at 37.54 euros per share.

Smurfit agreed last month to buy Dutch paper and recycling firm Reparenco for 460 million euros and said on Wednesday that it was targeting synergy benefits in excess of 30 million euros from the deal, a disclosure it was forbidden from making at the time under takeover rules.

It also laid out a four-year plan in February to increase investment in its existing businesses by 1.6 billion euros.

Elsewhere in the sector, UK-based DS Smith Plc this week offered to buy Spanish rival Europac for 1.9 billion euros ($2.2 billion) including debt to bolster its position in western Europe’s fast-growing packaging market.

Ireland’s Davy Stockbrokers increased its forecast for Smurfit Kappa’s full year core earnings by 6 percent for 2018 and 5 percent for 2019, reflecting the recent acquisition and strong underlying fundamentals in the sector.

It also increased its price target for the stock to 42 euros, above the 37.50 euros per share International Paper bid.

“It is little wonder therefore that SKG’s Board rejected the proposal from International Paper,” Davy analyst Barry Dixon wrote in a note. ($1 = 0.8511 euros) (Reporting by Padraic Halpin Editing by Keith Weir)

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