A blow to UK packaging? How a Smurfit WestRock deal could hinder British expansion

08 Sep 2023 --- The ongoing merger discussions between Smurfit Kappa and WestRock could cause further disruption to the UK’s economy and restrain global expansion efforts of smaller packaging producers who are already under increasing pressure due to Brexit reforms.

The tie-up means Smurfit, currently listed on the London Stock Exchange (LSE), would move its headquarters to Dublin, Ireland, and be listed on the New York Stock Exchange.

The merger would cause an approximately £9 billion (US$11.24 billion) loss to the LSE.

This will likely cause a ripple effect for the UK’s packaging industry, with more businesses potentially looking to leave the country as the market becomes increasingly unattractive.

Neil Farmer, an industry expert and the founder and owner of Neil Farmer Associates, says a “period of rationalization” is likely to follow the merger (for which no date or financial terms have yet been announced) with further disposals, acquisitions and smaller deals on the horizon.

Smurfit Kappa will be the latest major corporation to leave the UK since Brexit.“Smurfit is the latest major company to retreat from the London market. For UK packaging companies hoping to expand on a global stage, the UK has limited attractions,” he tells Packaging Insights.

“The business outlook, notably the lack of economic growth and productivity, makes it unattractive.”

Brexit backlash?
A series of major businesses have exited the LSE in recent years, with Julia Hoggett, chief executive of the LSE, warning that London risks falling into a “perpetual cycle” of decline, according to The Times.

Concerns over the ability to raise capital and the nature of the business climate in the UK lie at the heart of these pull-outs, according to Farmer.

Recent examples include CRH, one of the world`s building materials groups, worth approximately £30 billion (US$37.5 billion), which is switching its listing to the US this year.

Arm Holdings, a UK-based chip designer and part of Japanese investment giant Softbank, also announced it is seeking to secure a market value of US$50 billion in its first sale of shares to the public since 2016 by raising US$5 billion in its listing in the US market, notes Farmer.

The company clarified that the LSE was not the right market for Arm, referencing issues over the UK economic and labor market outlook. Its shares start trading in the US next week.

“Brexit has not helped, with more regulatory costs and red tape making smooth transportation of goods between the EU and the UK problematic,” asserts Farmer.

“The outlook for both the LSE and the whole economy is challenging, to say the least.”

By Louis Gore-Langton

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