Will JSG and Kappa Merge?

Jefferson Smurfit Group (JSG), Dublin, Ireland, is in talks with Kappa Packaging, Eindhoven, the Netherlands, to possibly form a $6.4 billion packaging company.
Last week JSG said the two companies “confirm that they have commenced preliminary discussions which may or may not lead to a transaction,” reports the Irish Independent.

Kappa has a capacity of 2.4 million metric tons a year of containerboard and 1 million metric tons a year of boxboard. It employs 16,000 people in 17 European countries and has annual sales of $3.8 billion.

JSG is also a major factor in the containerboard and corrugated board sectors. It produces 4.5 million metric tons of paper and board and 3.7 million metric tons of paper-based packaging products. It employs about 30,000 people and has a presence in 20 countries. Last year it had sales of $6.1 billion.

Last October Kappa retained Goldman Sachs to examine the possibility of an exit for its primary investor, Cinven, which led a $1.9 billion buyout of Kappa from Dutch company KNP BT in July 1998.

“As the two groups are leveraged buyout structures, it is likely that a potential combined entity would also be highly leveraged, and thus exposed to high financial risk,” says Andreas Kindahl, an analyst with the credit ratings agency Standard & Poor’s. S&P points out that any deal is likely to be subject to regulatory approval, as a combined group could dominate numerous markets.OBM