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DS Smith jumps on rival offer from International Paper, talks ongoing with Mondi

Shares in FTSE 100-constituent DS Smith PLC (LSE:SMDS) surged 7% higher to 384.8p after the packaging group confirmed yesterday evening that it is in talks about being bought by rival International Paper Co (NYSE:IP).

Earlier this month it agreed to a £10 billion merger with Mondi PLC (LSE:MNDI).

The new proposal is that DS Smith shareholders would get 0.1285 International Paper shares for each of theirs, with the latest IP share price of $40.85 valuing DS Smith at 415p apiece, a 48% premium to where its shares traded before its 8 March Mondi statement.

DS Smith said it is also continuing discussions with Mondi regarding the all-share offer from the South Africa-based rival, which valued its shares at 373p for a £5.14 billion valuation.

On the IP deal, it said: "The board acknowledges the strategic merits and potential for value creation through a combination with International Paper. Accordingly, the board is progressing its discussions with International Paper regarding the proposal."

But it stressed that the proposal might not result in a firm offer.

IP shares fell 6.5% to $38.20 yesterday after the announcement.

Analysts at Jefferies said: "While no synergies have been discussed, we believe there would be greater synergies with Mondi vs IP given the integration benefits & geographic overlap."

If Mondi raises its offer price to a similar 415p, the analysts said they "see less support" from shareholders and risks that Mondi could walk away.

"Overall, while we see greater value creation from MINDI + SMDS vs IP + SMDS, it will come down to the firm actual offer that comes forward. A surprise given new IP CEO just confirmed, but overall we view IP bid as positive for SMDS shareholders."