DS Smith is buying the recycled packaging operations of Svenska Cellulosa Aktiebolaget for €1.6bn (£1.3bn) in a move to secure more business from the world’s top consumer goods companies.
The company said the acquisition, which excludes two mills in Sweden that use virgin pulp, would be financed by a combination of debt and £466m from a nine-for-eight rights issue priced at 95p a share.
It said buying the operations would give it a footprint across northern Europe and the Nordic area, where its main consumer goods customers already operate.
“Customers like Procter & Gamble, Nestle, Kraft, Reckitt Benckiser and Unilever wanted us to replicate the success we have in the UK and France of using recycled packaging across Europe,” chief executive Miles Roberts said.
Manufacturers are increasingly using recycled cardboard rather than virgin paper, plastics and wood, he said, creating a bright spot in a paper sector long beset by overcapacity and swings in demand.
“The macro economic situation is uncertain, and we haven’t made any heroic assumptions, particularly on revenue,” added Roberts. Analyst David O’Brien at broker Goodbody said: “We believe the deal will be well received as DS Smith demonstrates its ambition and makes significant strides in reaching its strategic goals.”
MEET THE ADVISERS: JP MORGAN CAZENOVE
Malcolm Moir is a managing director at JP Morgan Cazenove, and led the team advising DS Smith on the company’s successful bid for French packaging firm Otor in 2010.
He has also worked with Babcock on its takeover bid for VT, and acted for First on its failed bid for National Express. Mark Breuer is a vice chairman who previously served as head of the bank’s mergers and acquisitions team.
He was one of five JP Morgan executives to make the board in 2008, after moving to the firm as part of Cazenove in 2004.
He advised on L’Oreal’s acquisition of The Body Shop, and acted for George Wimpey on its merger with Taylor Woodrow.
Breuer played a key role in Linde’s acquisition of rival BOC, and is currently advising Chloride following an offer by Emerson Electric. He was a prominent figure in KKR’s acquisition of Boots.