This potential acquisition could result in a combined entity worth more than £10bn ($13bn), positioning it as a leader in the European sustainable packaging market.
According to Mondi, the possible combination will benefit from structural growth trends in sustainable packaging, improved vertical integration, substantial synergies, economies of scale, and combined supply chain and administration efficiencies.
In a stock exchange filing, Mondi said: “Mondi believes that a possible all-share combination with DS Smith represents an exciting opportunity to create an industry leader in European paper-based sustainable packaging solutions.”
Mondi has until 7 March 2024 to either formalise this offer or withdraw, following UK acquisition regulations.
Smith has also confirmed it received a highly preliminary expression of interest from Mondi.
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This disclosure of Mondi’s preliminary interest by DS Smith led to a 13% surge in its share price, pushing the company’s market valuation to approximately £4.49bn.
In a statement, Smith said: “There can be no certainty as to whether any proposal will be made or the terms of any such proposal. A further announcement will be made if and when appropriate.”
The proposal from Mondi comes after Smith saw its profit drop 12% to £204m in the first half of financial year 2023/2024.
The company’s revenue also declined by 18% to £3.51bn during the period.
The potential merger comes amidst a wave of consolidation within the paper and packaging industry.
In September last year, corrugated packaging leader Smurfit Kappa entered into agreement to acquire Westrock in a landmark deal estimated to be worth $11.2bn.
Meanwhile, Mondi has divested its Russian assets, including the sale of its largest plant for Rbs80bn and three other packaging plants in the country for Rbs1.6bn.
Last week, Mondi acquired the Hinton Pulp mill in Alberta, Canada, from West Fraser Timber, a diversified wood products company, for $5m.