Private equity-backed packaging companies Jefferson Smurfit Group (JSG) and Kappa Packaging have agreed to merge to create Smurfit Kappa Group. Kappa, which is jointly owned by Cinven and CVC Capital Partners, has been seeking a buyer since October 2004. Ireland-based JSG was the subject of a public-to-private deal by Madison Dearborn Partners in 2002.
Under the terms of the deal, JSG’s shareholders will hold 58.3% of the new entity and Kappa’s current owners 41.7%, in a deal worth in the region of US$3bn (€2.5bn), based on the US$4.3bn (€4.6bn) price of taking JSG private in 2002.
The deal is being financed through the issue of shares by JSG, as well as the payment of a cash consideration of approximately €300m and the issue of a €75m subordinated promissory note to Kappa’s shareholders. The combined company then proposes to finance the cash consideration and to refinance Kappa’s existing debt and the existing JSG senior credit facility through a new senior credit facility aligned to JSG’s current rating.
JSG was taken private when MDCP Acquisitions, an affiliate of Madison Dearborn Partners, completed the takeover of Jefferson Smurfit Group PLC and its Smurfit-Stone Container affiliate in a transaction valued at €3.5bn (US$3.3bn) plus debt.
The founding Smurfit family remained with the business following the 2002 deal and under the new agreement will continue to lead the merged entity. Michael Smurfit will become chairman of Smurfit Kappa and Tony Smurfit is to be president and COO. Gary McGann, JSG’s current CEO and a long time employee of the group, will continue as CEO of the merged group.
Madison Dearborn will nominate five directors to the board of the new company, with CVC and Cinven each adding two nominees. Joining Michael Smurfit as chairman will be Kappa CEO Frits Beurskens as deputy chairman of the new group, with McGann, Tony Smurfit and Ian Curley of JSG making up the rest of the board.
Deutsche Bank, which advised Madison Dearborn on the 2002 deal, is advising JSG on the merger, Goldman Sachs is advising for Kappa.
Kappa and JSG operate broadly complementary paper products businesses and are likely to see some synergies and increased scale in the corrugated and containerboard paper products segments. In combination the two companies would have annual sales of €7.6bn and would become a world leader in corrugated products, a European leader in containerboard and a significant player in both paper grades in Latin America.
The JSG-Kappa merger follows another significant paper deal earlier this month, when Norway-listed Norske Skogindustrier agreed to buy out Abitibi Consolidated, its joint partner in the PanAsia Paper Company, for up to US$630m to become the world’s second-largest newsprint manufacturer and a top-three paper maker.
In March 2005, JSG Jefferson Smurfit completed the €450m sale of Sweden based Munksjö, a maker of value-added paper products, to the EQT 111 fund controlled by Swedish PE firm Investor AB. In June, the group sold real estate and leisure assets in Ireland to an investor group including Michael Smurfit for €115m.