WestRock (WRK) Confirms Merger With Smurfit Kappa, Shares Gain
WestRock Company WRK and Smurfit Kappa Group Plc SMFKY have agreed to merge and create Smurfit WestRock, which is expected to be one of the world’s largest paper and packaging company with a worth of around $20 billion.
Smurfit WestRock will have an unmatched geographic reach spanning 42 countries. Given this scale, and equipped with WRK and SMFKY’s highly complementary portfolios and innovative sustainability capabilities, the merged entity is likely to be the global “Go-To” packaging partner for companies and customers across the globe. WestRock’s shares have jumped 7.2% in pre-market trading on the news.
WestRock and Smurfit Kappa’s combined last twelve months’ revenues and adjusted EBITDA were around $34 billion and $5.5 billion, respectively (as of 30 Jun, 2023). The combination will lead to improved operating efficiency and increased returns across more than 500 converting operations and 67 mills. It is projected to result in annual pre-tax run-rate cost synergies of more than $400 million in the first year following its completion.
The deal is subject to approval of shareholders of both WestRock and Smurfit Kappa as well as other customary closing conditions. It is expected to close in the second quarter of 2024.
Smurfit WestRock would be incorporated and domiciled in Ireland with global headquarters in Dublin, Ireland, and North and South American operations headquartered in Atlanta, GA. It will seek a New York listing with a standard listing on the London Stock Exchange.
Per the agreement, WestRock shareholders will receive one Smurfit WestRock share and $5 cash. This is equivalent to $43.51 per share, the closing share price of Smurfit Kappa’s shares on Sep 11, 2023. Smurfit Kappa shareholders will receive one new share. SMFKY will own approximately 50.4% in Smurfit WestRock and the balance 49.6% will be held by WRK.
Both WRK and SMFKY are major players in the Paper and Related Products industry. Recently, the industry has been impacted by weak packaging demand, as customer spending has been muted due to inflationary pressures. Nevertheless, increasing packaging requirements due to a rising trend in e-commerce activities and steady demand from consumer-oriented end markets, such as food and beverages, and healthcare, are envisioned to support the industry.
The growing preference for paper as a sustainable and eco-friendly packaging option due to environmental concerns will act as a key driver for this industry going forward. The companies are working on boosting their capacity to capitalize on this packaging demand.
WestRock currently carries a Zacks Rank #3 (Hold).
Shares of WestRock have lost 13.4% in the past year compared with the industry’s 3.7% decline.
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Stocks to Consider
Some better-ranked stocks from the basic materials space are Carpenter Technology Corporation CRS and Hawkins, Inc. HWKN. CRS and HWKN presently sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
Current-year earnings estimate for Carpenter Technology is pegged at $3.48 per share, indicating year-over-year growth of 205%. CRS beat the Zacks Consensus Estimate in all the last four quarters, the average surprise being 10%. The company’s shares have rallied 71% in the past year.
Hawkins has an average trailing four-quarter earnings surprise of 25.5%. The Zacks Consensus Estimate for HWKN’s fiscal 2024 earnings is pegged at $3.40 per share, up 38% in the past 60 days. Its shares have gained 47% in the last year.
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Carpenter Technology Corporation (CRS) : Free Stock Analysis Report
WestRock Company (WRK) : Free Stock Analysis Report
Smurfit Kappa (SMFKY) : Free Stock Analysis Report
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