Regulatory approval: Liqui-Box to snap up DS Smith’s Plastics Division for US$514.6m

21 Feb 2020 --- UK packaging group DS Smith’s pending sale of its Plastics Division to liquid packaging company Liqui-Box is expected to close shortly after clearing the US Department of Justice regulatory hurdle. Subject to the required US federal court ratification, the Olympus Partners portfolio company will acquire the Plastics Division for a reported net price of £400 million (US$514.6 million). DS Smith reiterates that the sale will allow it to focus on its core corrugated fiber-based business, which it suggests offers a “more lucrative future.”

Both DS Smith’s Plastics division and the acquirer have operations in the US meaning that the Department of Justice’s consent was required. The transaction is now expected to close in Q1 2020.

As part of the agreement, Liqui-Box will divest selected DS Smith/Rapak bag-in-box (BIB) business in the US, including two manufacturing facilities located in Indianapolis, Indiana, and Union City, California.

The Plastics Division consists of sustainable flexible packaging and dispensing solutions, extruded plastic sheet products, returnable injection-molded crates and molded foam products. The division represents 5 percent of the DS Smith business and makes up 6 percent of its total revenue and largely focuses on industrial bag-in-box type products for transporting large volumes of liquids.

Liqui-Box will divest selected DS Smith/Rapak bag-in-box (BIB) business in the US.“I am pleased that we were able to find a solution that works for all parties and can now move forward with closing the acquisition,” comments Ken Swanson, Liqui-Box President and CEO. “As we work to integrate Liqui-Box and DS Smith Plastics, we will align product families, improve distribution networks and leverage the strengths of each business to deliver an enhanced value proposition.”

“The deal is an important step for DS Smith in its continued strategy to focus on fiber-based packaging, which we believe to be the most sustainable solution for a growing range of customers,” a DS Smith spokesperson tells PackagingInsights.

An attractive price
DS Smith announced that it was looking for a buyer for its plastics division in October 2018, amid predictions that the deal could be worth US$800 million. Although the deal struck with Liqui-Box represents a significantly lower value, the spokesperson maintains that the deal is “financially and strategically attractive” to DS Smith.

UK packaging expert Neil Farmer agrees that DS Smith stuck a good deal and that the Plastics Division has long been seen as non-core. “This is a good number and higher than other deals in the plastics sector that have been going through recently,” he tells PackagingInsights.

“The deal also makes sense because there are concerns by some shareholders and industry experts over the amount of debt that DS Smith has. The sale will reduce gearing and strengthen the balance sheet,” adds Farmer.

A corrugated future
DS Smith boasts a solid presence in the e-commerce sector, which is growing at 14 percent a year. The growth is expected to accelerate due to the proliferation of e-commerce as a whole.

“The sale is consistent with our strategy to be the leading supplier of sustainable packaging solutions, and increases our focus on high-quality, cost-effective corrugated packaging,” the spokesperson says.

In January, DS Smith opened a state-of-the-art box manufacturing plant in Illinois, US. “We are ambitious and excited about the future – we see strong fundamental drivers for growth in the demand for corrugated packaging, with sustainable solutions that meet changing societal needs, and we believe DS Smith is very well placed to benefit.”

In January, DS Smith opened a state-of-the-art box manufacturing plant in the town of Lebanon, Illinois, US. The “industry-leading” facility can produce 30,000 boxes an hour and 2 billion square feet of recyclable packaging annually – more than 17 million square feet of packaging per day.

The plant “heralds the company’s latest technology, keeping pace with the increasing demands by consumers and retailers for fully recyclable boxes and ‘fit-to-product’ packaging that reduces costs, waste and ‘packing air’ of irregularly shaped items,” the global supplier says.

Last year, a DS Smith survey revealed that six out of ten European consumers (62 percent) say they would be willing to pay more for food products that contain less plastic packaging.

By Joshua Poole, with additional reporting by Anni Schleicher