WestRock in Merger Talks with Irish Packaging Competitor

Atlanta-based packaging giant WestRock is exploring a merger with Smurfit Kappa Group plc, a competitor based in Ireland.

Smurfit announced that the companies’ boards of directors were in discussions on a consolidation on Sept. 6, after the Wall Street Journal broke the news. 

In a document outlining the possible deal’s rationale to shareholders and regulators in the United Kingdom, where Smurfit is publicly traded, the Dublin-based company said the deal would create the world’s largest packaging company and result $400 million in annual cost savings after a one-time charge of $235 million. 

In addition to product portfolios the companies see as complementary, Smurfit and WestRock see little geographical overlap today. More than $16 billion of WestRock’s record $21.3 billion in sales come from the U.S. alone, with Canada a distant second followed closely by Latin America.

In corrugated packaging, WestRock’s strongest category, the Europe, Middle East and Africa (EMEA) region barely registers, while it accounts for about $1 billion in the consumer packaging segment. 

Europe, meanwhile, is Smurfit’s stronghold. It generates more than two-thirds of its €12.8 billion in sales from the continent, where it operates in 23 countries. The rest mainly comes from Latin America, where it has sites in 13 countries.

Due diligence is still being conducted, but if the deal makes it through the gauntlet of shareholder votes and regulatory approvals, it would establish a new entity called Smurfit WestRock that would be headquartered in Ireland while retaining North and South America operations in Atlanta. It would have a presence in 42 countries. 

Atlanta, which prides itself on being the third largest concentration for Fortune 500s, would lose one of these coveted corporate heavy-hitters, at least on paper, and it’s too early to know how its local workforce may be affected. 

WestRock employs more than 50,000 people, mostly across the U.S. and Canada. Beyond its home office in Sandy Springs, the company operates multiple sites around Georgia including a containerboard and paper mill in Dublin, Ga.

The London Stock Exchange would also suffer a blow, as Smurfit plans to remove its premium listing after the combination, making it ineligible for inclusion on the FTSE100. It would also delist from the Euronext market in Ireland, then Smurfit WestRock would list on the New York Stock Exchange as soon as possible. 

To structure the deal, WestRock would be merged with a Smurfit subsidiary and its shareholders would be compensated with shares in the new group. While Smurfit is smaller than WestRock by revenues, it has higher profit margins and has been rewarded with a slightly larger valuation. 

Prospective terms of the deal were not disclosed, as the companies are still in talks. Combined, they had roughly even market capitalizations totaling close to $19 billion as of Sept. 7. 

A combined Smurfit WestRock would have $34 billion in revenues and $5.5 billion in pre-tax earnings, giving the company significant scale as the industry works to meet growing demand for biodegradable, recyclable packaging materials in an effort to displace plastic.