DS Smith set to purchase SCA packaging business

SCA, which has a recycling business in the UK, is to concentrate on its hygiene tissue products business.

Jan Johansson, president and chief executive of SCA, said today (January 17): Over the years we have developed our packaging business and we are divesting a competitive operation to an industrial buyer who can continue to develop it.

The transaction is subject to approval from DS Smiths shareholders and antitrust clearance from the European Commission. Closure of the deal is expected during the second quarter of 2012 and DS Smiths financing of the transaction was described by SCA as committed.

The purchase is expected to give DS Smith stronger contacts with packaging users across Europe, especially manufacturers who sell similar products in more than one country. And, it will mean it has to acquire more recycled materials, with its demand for used cardboard and paper likely to increase in the UK, where it already has a very strong presence. As yet, it is not known if DS Smith Recycling which acquires material primarily for the groups own use will expand its activities on the Continent.

Opportunity

DS Smith’s group chief executive, Miles Roberts said: This is an exceptional opportunity to create value for shareholders by becoming the leading recycled packaging company across Europe a company that will be better positioned to deliver even better service and innovation to our strong and growing FMCG customer base.

“SCA Packaging is a well invested business with long positions in recycling and packaging and short paper capacity that is very complementary to our strengths. It is a great step in DS Smiths development and I look forward to working together with the team at SCA Packaging to create an outstanding supplier for our customers and making it a fulfilling place for our staff to work to deliver substantial value for our customers and Shareholders.

A statement from DS Smith added thatits boardbelieves that the Acquisition represents an exceptional opportunity to accelerate DS Smiths strategy to become the leading supplier of recycled packaging for consumer goods in Europe. SCA Packaging is the second largest packaging business in Europe with strong positions in recycled consumer packaging. The assets of SCA Packaging are situated in geographies highly complementary to those of DS Smith. In combination, the Enlarged Group will be in a leading position in the main European markets.

Facilities

DS Smith explained that As at 30 September 2011, the SCA Packaging Group (excluding locations of certain joint ventures) owned facilities in 21 countries, which included 110 corrugated manufacturing locations (109 corrugated manufacturing locations in 20 countries after a subsequent disposal). In the year ended 31 December 2010, SCA Packaging (including the effect of certain joint ventures and discontinued operations) sold 3,621 kilotonnes of recycled fibre, sold 1,383 kilotonnes of CCM; and had corrugated sales volume of 3,428 million square metres (approximately 1,783 kilotonnes).

The UK company also explained that like DS Smith, SCA Packaging manufactures less paper than it uses, resulting in a short position in paper.

DS Smith proposes to finance the acquisition with existing and additional debt and a rights issue to raise a total of approximately 456 million, net of underwriting commissions. The rights issue is on the basis of nine new ordinary shares for every eight existing ordinary share, at 95 pence each.