By Richard Francis and Yadarisa Shabong
(Reuters) -Mondi reached an agreement in principle for an all-share offer to buy smaller rival DS Smith for 5.14 billion pounds ($6.57 billion) to create a paper and packaging giant worth more than 10 billion pounds in market value.
The terms of the deal represent an implied value of 373 pence per DS Smith share with Mondi (LON:MNDI) shareholders owning 54% of the enlarged Mondi group.
"The combination is an exciting opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions," the companies said in a joint statement.
Paper packaging firms have suffered from low volumes and prices in the past year as customers de-stocked amid tough market conditions. They had seen a pandemic sales boom before that on e-commerce demand as online shopping took off.
The companies, which are currently evaluating the quantity of synergies arising from the deal, said it would benefit both shareholders with increased exposure to structural growth trends in sustainable packaging and a highly complementary geographic footprint, creating a leading player in corrugated packaging across Europe.
The purchase price represents a 33% premium to DS Smith's closing share price of 281p on Feb.7, a day before Mondi announced the preliminary bid.
Mondi's offer marks the second recent multi-billion attempt at consolidation in the paper and packaging industry. Rival Smurfit Kappa (LON:SKG) is buying WestRock in a $11 billion deal that is expected to close in July 2024.
The expanded group will be continued to be led by its current management with Andrew King as the CEO and Mike Powell as its finance chief.
Current Mondi Chair Philip Yea will continue in his position with DS smith expecting to add three Non-executive directors to the enlarged group's board.
($1 = 0.7822 pounds)