In a public letter to the board of directors of Smurfit Kappa dated Dec. 21th, PrimeStone Capital, a private equity firm owning 0,8% of the Irish group, is expressing concerns regarding the impending merger with the American WestRock.
The merger deal, announced on September 12th, involves Smurfit Kappa acquiring WestRock for $11.2 billion, aiming to create the world’s largest paper company, named Smurfit WestRock, with an expected annual revenue of around $34 billion. Originally set to conclude in the second quarter of 2024, PrimeStone questions the strategic reasoning behind the merger, claiming it provides minimal financial benefits to Smurfit Kappa’s shareholders. The group particularly highlights concerns about WestRock’s substantial exposure to the paper industry, deviating from the established ‘integrated model.’
PrimeStone also expresses apprehensions about the lower quality of WestRock’s assets compared to its competitors, attributing this to a decade of underinvestment. Doubts are raised regarding WestRock’s management effectiveness in creating value, along with concerns about the business composition and potential for synergy.
In the letter, PrimeStone suggests that Smurfit Kappa might have more appealing alternatives, including remaining an independent company or exploring a merger with International Paper (IP). The group sees IP as a potential global leader, emphasizing factors such as IP’s dominance in corrugated or containerboard business, superior asset quality, lower costs, higher integration, and better returns.
While acknowledging the positive aspects of Smurfit Kappa’s leadership team and their sustainability efforts, PrimeStone ultimately argues that the WestRock transaction could negatively impact Smurfit Kappa’s business profile. According to the group, it may result in a higher-cost, less integrated company with increased leverage for modest financial benefits. PrimeStone insists that more attractive alternatives, including a potential merger with International Paper, should be considered. However, traders in Dublin believe that PrimeStone’s critique is unlikely to influence Smurfit Kappa’s board or shareholders at this advanced stage, citing other factors affecting International Paper’s current situation.
