Paper Chase for Smurfit May Draw More Suitors, Rival CEO Says

(Bloomberg) -- Irish packaging company Smurfit Kappa Group Plc would be a “dream come true” for suitor International Paper Co., but there may be other predators waiting in the wings, according to the head of a smaller industry rival.

“I would expect other public companies with excess cash and lack of opportunities to make a bid,” said Cord Prinzhorn, when asked about the emergence of any competing offers for Smurfit from firms like Mondi Plc or Finland’s Stora Enso Oyj.

“All these public company CEOs want to be the biggest and leave a legacy,” the CEO of Vienna-based paper maker Prinzhorn Holding GmbH said in an interview. A spokesman for Mondi, a paper company with roots in South Africa, didn’t immediately provide comment, while Stora Enso and Smurfit declined to comment.

Earlier this month, Smurfit rejected an unsolicited 8.6 billion-euro ($10.6 billion) bid from sector giant International Paper, which makes one in three cardboard boxes in the U.S. and would become No. 1 in Europe with the purchase of its Dublin-based competitor. The deal would rank as the second-largest ever in the sector, and Smurfit has left the door open for talks on a higher offer.

Heating Up

Prinzhorn, 45, who has been CEO of the Austrian supplier since 2013, said mergers and acquisitions in the sector are showing some “signs of overheating.” The packaging industry has seen a wave of consolidation boosted by economic growth and the rise in online shopping. Profits are also supported by the small amount of new supply coming online, according to analysts at Bloomberg Intelligence.

“Offer prices are so high that it’s getting attractive for sellers,” the executive said. Prinzhorn Holding itself has “several hundred million euros” of funds to make acquisitions and investments, and is constantly looking at medium-sized targets across the region, where the industry is still fragmented into family-owned structures. It has already bought companies in Germany, Greece and Turkey.

The family-owned producer that began more than a century and a half ago as a single paper mill in Pitten, Austria is planning to double output by 2030. With annual revenue of 1.4 billion euros, it operates in 15 countries recycling paper products and making packaging and is building a mill near Dresden.

Buying In

“International Paper has entered and exited several markets in Europe unsuccessfully over the past decades,” Prinzhorn said. “As they cannot get their hands around Europe, they can only try to buy their way in.”

With several smaller companies declining to sell to the U.S. giant in the past, a takeover of Smurfit would be its “dream come true,” he said.

International Paper’s current offer represents a multiple of 9.56 times profit, compared with an industry median of 8.15, according to Bloomberg Data. Strategic acquisitions could push the multiples to between 10 and 12 times, with the risk of write-offs down the road, he said.

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