Mondi strikes £5.1bn deal to buy rival packaging giant DS Smith

Mondi has confirmed plans to acquire rival DS Smith in a £5.1bn deal that would create a packaging heavyweight in Europe.

The Surrey-based company’s £3.73 per share offer for its rival, a major supplier to retail giant Amazon, represents a 33 per cent premium to DS Smith’s closing share price on Thursday.

Mondi shareholders will retain a 54 per cent stake in the expanded business if the deal goes ahead, with DS Smith investors holding the remaining 46 per cent.

Chairman Philip Yea, chief executive Andrew King and chief financial officer Mike Powell will remain in their respective roles, while three DS Smith non-executive directors will join Mondi’s board.

Last month, the two companies acknowledged they were in the “early stages” of discussing a potential alliance, which would establish a paper and packaging business with a market value of more than £10bn.

Both companies experienced a boom in sales during 2020 and 2021, when Covid-related restrictions forced many stores to temporarily close, leading to a surge in online retail orders and package deliveries.

But since pandemic restrictions were lifted, e-commerce has slowed significantly as consumers have returned to more traditional shopping patterns and been hit by rising cost of living pressures.

This has led to weaker packaging volumes at DS Smith and Mondi, which have also been affected by higher raw materials, energy and labor costs.

Mondi reported that revenues fell 18 per cent to £7.33bn last year, while pre-tax profits plummeted by more than half to £682m.

Earlier this week, DS Smith revealed that corrugated box volumes since November had stagnated amid weaker demand in northern Europe.

In a joint statement released after the market closed on Thursday, the two companies said an acquisition would lead to “substantial synergies,” although they have not yet quantified the value of these synergies.

They told investors the deal would increase their ability to serve customers in the fast-moving consumer goods sector and give them greater “exposure to structural growth trends in sustainable packaging.”

Under the city’s procurement rules, Mondi has until 5 p.m. on April 4 to declare a “firm intention” to make an offer or walk away.

Victoria Scholar, chief investment officer at Interactive Investor, said the deal “would allow both to benefit from economies of scale in a competitive sector within a world that is becoming increasingly reliant on Amazon deliveries.”

DS Smith Stock rose 6.95 per cent to 347.8 pence just before midday on Friday, but mondi shares They were down 1.7 percent at 1,356.5 pence.