Irish paper and packaging company Smurfit Kappa Group has confirmed advancing discussions regarding key terms of its potential merger with American corrugated packaging company Westrock.

Benher Gracio, business fundamentals analyst at GlobalData, a leading data and analytics company, offers his view:  

“A potential merger of Smurfit Kappa and Westrock will see the emergence of a top global paper and packaging player with strong operational synergies, as the two companies have identical business models.”

International expansion

Gracio asserts that for both companies, corrugated packaging is the mainstay with strong market positions.

“In terms of production volume, Smurfit Kappa holds a leadership position in Europe and to boot, it has a significant presence in Latin America as well.

“While WestRock has a strong manufacturing presence with 145 facilities primarily concentrated in the Americas, Smurfit Kappa has over 350 facilities, with the majority of them located in 23 European countries. It also has a sizeable presence in the Americas with close to 100 facilities in 13 countries.

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“Smurfit Kappa has also been on an expansion spree, establishing facilities in new markets like Morocco. Thus, a combined entity will have an impregnable presence in over 40 countries across the Americas and Europe, with about 500 converting facilities and over 60 mills.

“This is robust, given that the industry’s top player, International Paper Co., has about 220+ facilities and 28 mills, which will further widen the gap at the top.”

The financial outlook of Smurfit Kappa and Westrock’s merger

“Financially, while WestRock is yet to recover to the 2018 profit level, the company did recover in the past two years from the lows of 2020, when it recorded a $691mn loss. Its top line has been witnessing a compound annual growth rate (CAGR) of over 7% since 2017. WestRock’s net debt to EBITDA stands at 3.8 times, with $419mn to be paid in a year.

“On the other hand, Smurfit Kappa has been on the ascendancy since 2017, with both top and bottom lines registering strong growth rates of 8.4% and 17.8%, respectively. Smurfit also has a strong financial footing, with its net debt to EBITDA standing at 1.4 times and no significant debt maturities until 2026, offering it financial flexibility.

“Operationally, the combined entity will have a top line of over $30bn and EBITDA of over $5bn, cement its position ahead of industry leading players such as International Paper Co., and have a workforce of close to 100,000. This would make it the single largest global player.”

The global packaging industry waits with bated breath as the companies decide whether to go ahead with the merger.