The boards of US business International Paper and London-headquartered DS Smith said they had initially reached agreement on the terms of the recommended all-share combination deal in April.
The deal will be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 and is subject to the terms and conditions set out in the scheme document that was published on 11 September 2024.
The scheme document was published and sent by DS Smith to its shareholders on 11 September 2024, and the scheme was approved by the requisite majority of DS Smith shareholders on 7 October 2024.
But in an update, International Paper said that while the European Commission issued its Phase I clearance of the deal on Friday (24 January), the clearance was conditional on International Paper entering into commitments to divest its box plants located in Mortagne, Saint-Amand, and Cabourg in France, Ovar in Portugal, and Bilbao in Spain.
The European Commission, in a separate statement, said its investigation showed that the transaction, as initially notified, "would have reduced competition" in the markets for the manufacture and supply of corrugated sheets in the North and West of Portugal, heavy-duty corrugated sheets in North-East Spain, and corrugated cases in North-West France.
The Commission also found that the transaction would have resulted in high combined shares, as well as high concentration levels, in several local markets. The Commission further found that, after the merger, there would not be enough alternative competitors to exert sufficient competitive pressure on the merged entity. This would have led to higher prices for consumers in the affected markets.
To address the Commission's competition concerns, the parties offered to divest the five aforementioned International Paper box plants, and the Commission said these commitments fully addressed the competition concerns it had identified.
Completion of the divestment is not a condition to the completion of the deal.
Andrew Silvernail, chairman and CEO of International Paper, said: “While we would have preferred to keep the selected locations as part of our portfolio, these are attractive sites and we are confident we will find a suitable buyer.
“We are very pleased to have reached this important milestone in our acquisition of DS Smith. This combination will create a global leader in sustainable packaging solutions, focused on the attractive and growing North American and EMEA regions.”
The combination remains subject to the Court sanctioning the scheme at the Court Hearing, the delivery of the Court Order to the Registrar of Companies, and the satisfaction or – if capable of waiver – the waiver of the remaining conditions to the scheme.
The Court Hearing has been scheduled to take place this Thursday (30 January) and the scheme is expected to become effective the following day. International Paper said these dates and times are indicative only and are subject to change.
DS Smith’s share price has climbed by 3.2% in the past five days, reaching a 52-week high of 615.50p late on Friday, although at the time of writing at lunchtime today (27 January), it had dropped back to 610.55p. The 52-week low was 271.08p.
