Stacking That Paper

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What's going on?

Smurfit Kappa, an Irish paper packaging company, confirmed on Wednesday that it expects this year’s results to be ext-ream-ly good – a marked improvement on last year. The news comes a day after it sent a rival – International Paper – packing over an acquisition attempt.

What does this mean?

International Paper’s made two bids for Smurfit over the past three months – the latest being worth more than $10 billion – as it looks to cement itself as a leading player in the global packaging market.

However, Smurfit’s left its American counterpart feeling blue after it ignored both offers. The company believes it has strong prospects all on its own – Smurfit recently bought a Dutch packaging company for $540 million: partly to boost its growth prospects and partly to try to become too big to be bought itself.

Why should I care?

The bigger picture: Packaging companies are looking outside their own box.

Mergers and acquisitions are special deliveries for companies in the packaging industry right now – they hope to beef up and avoid price squeezes from the likes of Amazon. DS Smith, Amazon’s sole cardboard packaging supplier in the UK, acquired a Spanish competitor for £1.7bn this week – its largest acquisition ever.

For markets: Smurfit Kappa’s under pressure to deliver.

Acquisitions are usually a boon for share prices – the buyer pays a premium for control of a company, which tends to send its shares soaring. But with Smurfit rebuffing offers, its stock is now down almost 10% from its peak after the offer was made. Investors hoping to profit from any sale are likely disappointed they won’t be on the receiving end of a juicy premium anytime soon (IP can’t make a bid for another year). Investors who are sticking it out will be hoping Smurfit delivers on its promise of strong, independent financial performance.

Originally posted as part of the Finimize daily email.

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