WestRock (NYSE:WRK), one of the leading U.S. paper and packaging companies, and Europe’s packaging major Smurfit Kappa (GB:SKG) (SMFKY) are in discussions to merge into a combined entity called Smurfit WestRock, the latter confirmed in a statement. Shares of WestRock surged 12% in Wednesday’s extended trading session.
More on the Potential Smurfit WestRock Merger
As per the Wall Street Journal, which first reported the potential merger, the combination of the two companies would create a global paper and packaging giant worth about $20 billion. The combined entity would be incorporated and domiciled in Ireland. Its global headquarters will be in Dublin, Ireland, while its North and South American operations will have headquarters in Atlanta, Georgia.
The announcement by Smurfit didn’t provide any information on the financial aspects of the deal. If the deal goes through, the new company’s shares would be listed on the NYSE.
The combined last twelve months’ revenue and adjusted EBITDA of the two companies were about $34 billion and $5.5 billion, respectively, as of June 30, 2023. The two companies believe that this merger would enhance shareholder returns and ensure solid cash flows for future growth.
Additionally, the new entity is expected to target annual pre-tax run-rate cost synergies of over $400 million at the end of the first full year following the completion of the deal.
The potential merger is anticipated to accelerate Smurfit’s expansion in the Americas. Smurfit has 350 production sites in 22 countries in Europe, 13 in the Americas, and one in Africa. It claims to be the only large‑scale pan-regional player in Latin America.
The news of the merger between WestRock and Smurfit Kappa comes when the packaging industry is under pressure following a boom during the pandemic-induced lockdowns, when the demand for packaging goods surged.
WestRock’s Recent Performance
Last month, WestRock reported a 42.2% year-over-year decline in its fiscal third-quarter adjusted earnings per share (EPS) to $0.89. Nonetheless, the company exceeded analysts’ EPS estimate of $0.49. The company said that it is focused on streamlining its portfolio and further bringing down costs.
WestRock stock is down about 8% year-to-date (as of the closing of September 6).