(Reuters) - International Paper has stirred up a potential bidding war over British paper packaging firm DS Smith, making a takeover offer that sent the shares of the FTSE-100 target over a two-year high.
DS Smith said on Tuesday it was in discussions with International Paper over an all-stock offer from the U.S.-listed company, which valued it at 5.72 billion pounds ($7.22 billion), or 415 pence per share.
DS Smith shares gained as much as 7.9% to 338.1 pence in early Wednesday trade, hitting their highest since January 2022.
The proposal comes less than three weeks after DS Smith reached an in-principle agreement with its UK-listed rival Mondi (LON:MNDI), which made an all-share takeover offer valuing DS Smith at 5.14 billion pounds.
Under the terms of the U.S. group's proposal, DS Smith shareholders would receive 0.1285 shares in International Paper for each share they own in DS Smith. That would will give them 33.8% of the combined company - a smaller slice of the emerging entity than under Mondi's proposal, which would leave DS Smith shareholders with control of 46% of the enlarged group.
However, the offer's terms represent a higher value of 415 pence per DS Smith share based on International Paper's Monday closing price of $40.85, the British company said.
International Paper, which on Wednesday confirmed the talks, has until April 23 to make a firm offer.
"The Board acknowledges the strategic merits and potential for value creation through a combination with International Paper. Accordingly, the Board is progressing its discussions with International Paper regarding the Proposal," DS Smith said. It said it was continuing talks with Mondi.
Mondi declined comment.
Late last year, rival paper and packaging company Smurfit Kappa (LON:SKG) announced its acquisition of WestRock in an $11 billion deal, which is still pending closure.
International Paper's interest in DS Smith is unexpected given the company's recent focus on its North American business, Morningstar analyst Spencer Liberman said.
Shares of International Paper closed 6.5% lower at $38.2 on Tuesday.
Deal talks between DS Smith and International Paper were first reported by Sky News on Tuesday.
($1 = 0.7919 pounds)