Smurfit shareholders may regret WestRock merger

Multiple studies have found that most mergers fail, typically because the acquiring company has overpaid

Smurfit Kappa is paying a 36 per cent premium to where WestRock was trading before the companies revealed they were in talks – much greater than markets were expecting. Photograph: Luke MacGregor/Bloomberg

Smurfit Kappa shareholders have endured a tough time lately, with the stock falling 10 per cent after it revealed the terms of its proposed merger with US packaging rival WestRock.

Chief executive Tony Smurfit responded by predicting shares “will come back strongly” when investors see the “potential benefit”. Certainly, there are potential positives.

If the deal goes ahead, says Smurfit, most of the company’s business will be in the Americas, justifying a US listing that should drive a higher valuation multiple.

The timing looks good. Like other paper producers, WestRock shares had fallen back to pandemic lows, roughly halving since 2021′s peak. Smurfit is targeting synergies of over $400 million (€375 million) annually. That’s ambitious; if achieved, it would go a long way to justifying the deal.

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