Mondi backtracks on R120 billion deal to create packaging giant

Mondi announced today that it has decided not to move forward with a deal that would create one of the world’s largest makers of packaging.

Earlier this year, Bloomberg reported that Mondi agreed to buy DS Smith for £5.1 billion (R121.88 billion).

The all-stock deal has an implied value of 373 pence a share. That’s a 33% premium compared with DS Smith’s price on 7 February, the day before the company said it had received an initial approach from Mondi.

If the in-principle agreement were completed, the combination would have generated cost savings as well as benefits from greater scale as the packaging industry consolidates, the companies said in a statement.

Rival Smurfit Kappa Group last year agreed to acquire WestRock to create an Irish-American powerhouse.

The sector benefited from a surge in demand during the pandemic as consumers under lockdown ordered more goods online. However, demand has since fallen back as shoppers returned to physical stores.

Mondi shareholders would have owned 54% of the combined company, with DS Smith shareholders getting the rest.

However, today, Mondi announced that, following a period of due diligence and after carefully considering the value the combination with DS Smith would deliver to Mondi’s shareholders, its board has decided that the transaction would not be in the best interests of its shareholders. 

“Accordingly, Mondi does not intend to make an offer for DS Smith,” the company said.

Mondi said its board remains confident that its compelling portfolio of sustainable packaging and paper products, scale and cost-advantaged quality asset base, along with its pipeline of organic investments, ensure it is well-positioned to deliver long-term structural growth in the markets in which it operates.

Background

DS Smith traces its roots back to a box-making business started by the Smith family in East London in 1940. 

It is one of the world’s largest cardboard box makers and produces packaging for everything from cereal boxes to Amazon parcels.

Mondi began life in South Africa as part of Anglo American when the mining company built a mill there. 

In 2021, Mondi explored a takeover of DS Smith, Bloomberg reported, although talks with its advisers did not lead to a deal at the time.

Under UK takeover rules, Mondi had until mid-March to make a firm offer for DS Smith or walk away. 

Alongside the agreement in principle, it said in early March that the deadline had been extended to 4 April to formalise the offer.