2024-07-05 06:27:06 ET
Summary
- The combination of IP and DS Smith appears more like an acquisition by IP. But IP overpaid for DS Smith.
- My valuation shows potential value creation for both companies post-combination.
- The current market prices may be overestimating the intrinsic value of the combined IP and DS Smith.
Thrust of my analysis
Last month, International Paper Company (IP) and DS Smith Plc (DITHF) [LSE:SMDS.L] announced the expiration of the waiting period under the Hart-Scott-Rodino Act for their proposed combination. This removed one bar to the completion of the targeted combination to become effective in the fourth quarter of 2024.
In this article, I will look at the performance and valuation of the combined entity. In the announcement of the combination, IP had laid out the USD 514 million synergies and the one-time cost of about USD 370 million for the combination. Refer to Chart 1. My analysis will be based on this information.
Chart 1: Synergy opportunity (International Paper Apr 2024 presentation)
While the announcement had pitched the deal as a "combination", it looked more like an acquisition by IP for all the shares in DS Smith. This is because:
- Post-combination, the existing shareholders of IP will end up with 66% of the combined group, while the existing shareholders of DS Smith will end up with a balance of 34%.
- IP's CEO will be the CEO of the combined group.
- The headquarters of the combined group will be the IP's headquarters.
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For further details see:
The Combination Of International Paper + DS Smith Is Overpriced