PE trio line up packaging mega-deal

Jefferson Smurfit Group, the Irish packaging firm owned by Chicago-based private equity outfit Madison Dearborn Partners, has announced a proposal to merge with Kappa Packaging, a Dutch rival owned by London-based buyout firms Cinven and CVC Capital Partners. The deal would give the combined entity a valuation of around €7.6 billion ($9.4 billion).

Gary McGann, CEO, Jefferson Smurfit

Kappa, which was jointly acquired by Cinven and CVC for $1.65 billion in 1998, appointed Goldman Sachs to review its strategic options towards the end of last year. It was widely reported that options under consideration included an IPO as well as another sale to one or more private equity firms.

A spokesperson for Cinven denied that a merger was the least attractive option and that the other options had fallen through. The spokesperson said: “The bottom line is that Goldman Sachs was appointed to look at a number of different scenarios and decided that this was the best one. It’s pretty clear that it’s a very good deal.”

The same spokesperson added that, in addition to assuming a 41.7 percent stake in the new business – which would be renamed Smurfit Kappa Group – Cinven and CVC have received a cash payment of €300 million plus a further €75 million subordinated promissory note. This partial exit had delivered a more than 40 percent IRR, according to the spokesperson.

The merger, which is currently subject to EU competition approval and consultation with relevant employee organisations, would see Madison Dearborn appoint five directors to the board of Smurfit Kappa, whilst Cinven and CVC Capital Partners would appoint two each. Madison Dearborn, which acquired Jefferson Smurfit for €3.8 billion in 2002, would take a 58.3 percent interest in the business.

A statement from Jefferson Smurfit said the deal would see the refinancing of the entire existing Kappa debt and an existing Jefferson Smurfit senior credit facility by way of a new senior credit facility. It said a number of banks have agreed to underwrite the proposed financing.

The merged entity would boast enhanced geographic reach, combining Jefferson Smurfit’s strong market positions in Latin America, Western Europe and Southern Europe with Kappa’s positions in Northern and Eastern Europe. The business would become the largest in the world in corrugated packaging and Europe’s largest in containerboard packaging.

In a statement, Jefferson Smurfit CEO Gary McGann said: “We identified the need for structural change within the European paper-based packaging industry. A combination of JSG and Kappa would produce a focused leader in paper-based packaging, with compelling strategic, operational and geographic fit.”