Kepler upgrades Smurfit, adopts 'wait and see' mode after IP rejection

Kepler Cheuvreux has upped its stance on Smurfit Kappa to 'hold' from 'reduce' after the corrugated packaging company said this week that it had rejected an offer from US-based International Paper.

The bank upped its price target to €38 from €24 and said it was adopting a "wait and see" approach at this stage.

Smurfit said on Tuesday that it had received an unsolicited proposal from Memphis-based International Paper that it had rejected on the basis that it was "highly opportunistic" and "does not reflect the group's true intrinsic business worth or its prospects".

Under the terms of the offer put forward, Smurfit shareholders would be entitled to receive €22 in cash and 0.3028 new IP shares of common stock for each of their shares, valuing each Smurfit ordinary share at €36.46, which is a premium of around 27% to the closing price on 5 March.

"IP has a strong standing in the corrugated packaging market in North America and a small position in Europe, where SKG is the market leader. In our opinion, this is one of the reasons for IP’s proposal," Kepler said.

The bank said it had been negative on the stock based on its estimates that the ongoing capacity conversions and inflow of new packaging capacity led to a situation in which positive demand developments would fail to translate into consensus expecting profitability improvements in the coming years.

In the current situation, it reckons the shares will trade based on bid expectations.

"We think that from now on, the stock will trade at or above the proposed transaction levels. We do not have visibility on the process, and therefore we upgrade our rating from reduce to hold, and we will monitor further developments."

At 1140 GMT, the shares were up 0.1% to 3,194p.