WestRock stock jumps 8% on Smurfit Kappa merger to create $20B packaging giant

WestRock (NYSE:WRK), one of the largest containerboard producers, and Europe’s Smurfit Kappa (OTCPK:SMFTF) have signed a definitive agreement to create a $20B packaging giant called Smurfit WestRock.

WestRock (WRK) climbed ~8% during the early hours of Tuesday after the deal was announced, while Smurfit’s London-listed shares declined ~9%.

Under the deal, WestRock (WRK) shareholders will receive one new Smurfit WestRock share and $5 in cash for each WRK share they hold. This equates to $43.51 per WRK share.

The deal is expected to be high-single-digit accretive to Smurfit’s (OTCPK:SMFTF) EPS on a pre-synergy basis and in excess of 20% including run-rate synergies by the end of first full year after close.

Smurfit (OTCPK:SMFTF) and WestRock (WRK) together generated last 12 months’ adjusted annual revenue of ~$34B as of June 30, which would make Smurfit WestRock the largest listed global packaging partner by revenue.

Shareholders of Smurfit (OTCPK:SMFTF) and WestRock (WRK) will own ~50.4% and 49.6% of the combined company, respectively.

Smurfit WestRock will be listed on NYSE and the London Stock Exchange. Smurfit Kappa (OTCPK:SMFTF) CEO Tony Smurfit and and its chair, Irial Finan, will lead the combined firm.

“We will have the leading assets, a unique global footprint in both paper and corrugated, significant synergies, and enhanced scale to deliver value in the short, medium and long term,” said Tony Smurfit.

Jefferies analyst Philip Ng had warned that there are “limited synergies” to having a global footprint in the paper packaging industry.

Randal Kenworthy, senior partner at West Monroe, said the deal would likely raise antitrust concerns. “This is just going to tie up their management and legal team for the next eight months, and I think it’s a distraction.”