European Commission greenlights International Paper-DS Smith megamerger

The European Commission (EC) has approved International Paper’s acquisition of British e-commerce packaging giant DS Smith. The EC’s clearance is conditional on International Paper committing to divest its box plants in Mortagne, Saint-Amand and Cabourg (France), Ovar (Portugal) and Bilbao (Spain). 

International Paper’s CEO, Andrew Silvernail, says: “While we would have preferred to keep the selected locations as part of our portfolio, these are attractive sites and we are confident we will find a suitable buyer.” 

“We are very pleased to have reached this important milestone in our acquisition of DS Smith. This combination will create a global leader in sustainable packaging solutions, focused on the attractive and growing North American and EMEA regions.”

International growth opportunities

UK-based packaging analyst Neil Farmer tells Packaging Insights that the deal allows DS Smith to continue its strong presence in Europe while benefiting the company with the “undoubted opportunities of a strong partner in the global market, particularly North America.”

“In partnership with International Paper, the sustainable products and services of DS Smith will help drive the development of attractive and added-value solutions in all international markets to the benefit of customers, employees and shareholders,” he explains.

“In a very fragmented global industry, the deal creates a strong basis for further market expansion and greater growth in sustainable packaging.”

Farmer says that this year, opportunities exist in many territories in less consolidated markets. 

“Divestitures by International Paper in Europe will also yield greater competition and more potential M&A activity later in the year.”

Last year in the paper packaging industry, WestRock merged with Smurfit Kappa, creating the US$34 billion business Smurfit Westrock. Also, Suzano purchased two industrial mills from Pactiv Evergreen in the US for US$110 million.

Addressing competition concerns

In April last year, the boards of International Paper and DS Smith announced that they had reached an agreement on the terms of a recommended all-share combination. 

Now, the EC’s investigation showed that the transaction, as initially notified, would have reduced competition for the manufacture and supply of corrugated sheets in Portugal, heavy-duty corrugated sheets in Spain and corrugated cases in France.

Moreover, the EC found that the transaction would have resulted in high combined shares and concentration levels in several local markets. The institution also found that, after the merger, there would not be enough alternative competitors to exert sufficient competitive pressure on the merged entity. This would have led to higher prices for consumers in the affected markets.

The EC says that the International Paper plant divestments “fully address the competition concerns identified by the EC by fully removing the overlaps between the parties’ activities in the corrugated cases markets in North-West France.”

“The commitments also eliminate the overlap as regards the supply of corrugated sheets in the problematic local markets in Portugal and Spain and, as such, any vertical foreclosure concerns regarding corrugated cases,” it continues.

The EC announced it would subsequently approve the suitable purchaser or purchasers of the divested businesses.

“Following the positive feedback received during the market test, the EC concluded that the transaction, as modified by the commitments, would no longer raise competition concerns,” it says.

The decision is conditional upon full compliance with the commitments. An independent trustee will monitor their implementation under the supervision of the EC.