Smurfit Kappa and Westrock merger deal would create the largest containerboard producer in the world

Smurfit Westrock, the proposed new combined company, would create a $34 billion company with 23 million tons of mill capacity

Smurfit Kappa Group CEO Tony Smurfit told Fastmarkets’ PPI Pulp & Paper Week that the combination of Smurfit Kappa and WestRock is a promising and complementary deal.

The two companies signed a definitive agreement to combine in what would create a $34 billion company with 23 million tons of mill capacity and 500 converting plants focused on containerboard, as well as a large consumer packaging business. The combined companies would be the largest containerboard and boxmaking company in the world.

If the deal is finalized, the new combined company is to be called Smurfit WestRock.

“(This) combination has a lot of merit,” said Smurfit from Ireland on Sept. 12, who was selected by analysts last year as Fastmarkets’ International CEO of the Year.

“It’s a great responsibility to lead a company like this,” Smurfit said, assuming the deal is finalized. “We’re just at the starting gate … there’s going to be a lot of hard work.”

Smurfit said WestRock has been on a “transformation journey” and Smurfit Kappa is aboard to make WestRock assets “stronger” and “rightsized” as part of the combined company. WestRock in the last year or so has permanently shut seven corrugated converting plants and more than one million tons of US containerboard capacity.

After the definitive agreement became public, Tony Smurfit said he spoke with his father and industry icon Michael WJ Smurfit, who he said is “seeing the combination as having tremendous potential.”

Smurfit Kappa is the largest containerboard producer in Europe, and is active in Mexico, Brazil, and Latin America. WestRock is the second largest containerboard producer in North America with about a 20% market share, and the company also runs North America’s second largest boxboard and folding carton business. WestRock has large containerboard business in Mexico and Brazil, and is the largest unbleached packaging kraft paper producer in North America with a 50% market share.

Does the Smurfit WestRock merger signify a trend for global packaging markets? Read our analyst’s insights here

Smurfit WestRock, HQ-ed in Dublin, on the NYSE

In an announcement on September 6, Smurfit Kappa reported that the “Potential Combination would be expected to involve the creation of a new holding company, Smurfit WestRock. … Smurfit WestRock would be incorporated and domiciled in Ireland with global headquarters in Dublin, Ireland, and North and South American operations headquartered in Atlanta, Georgia. The Potential Combination would be effected through an Irish scheme of arrangement involving Smurfit Kappa and a merger of a subsidiary with WestRock.”

The release by Smurfit Kappa also said that the combined companies would operate more than 500 converting plants and 67 mills. Their LTM (last 12 months) revenue through first-half 2023 was $34 billion, with EBITDA of $5.5 billion for a 16.2% margin. Smurfit WestRock would be listed on the New York Stock Exchange.

The EBITDA for the two companies individually for the LTM as of June 30 was Smurfit Kappa at Euro 2.230 billion (US$2.289 billion) and WestRock at a pro forma EBITDA of $3.228 billion.

Smurfit Kappa’s release said that combining the two companies would create a firm with “unparalleled geographic reach across 42 countries with a significant presence across both Europe and the Americas,” and that the two now operate with “complementary portfolios with unique product diversity and innovative sustainability capabilities, with breadth and depth across renewable, recyclable, and biodegradable packaging solutions.”

The companies in the release said they “are targeting annual pre-tax, run-rate cost synergies in excess of $400 (million) at the end of the first full year following completion; management estimates these synergies would require incurring one-off cash costs of $235 (million).”

23 million tons per year of packaging board capacity

Capacity-wise, Smurfit WestRock would be larger in packaging board capacity than China’s Nine Dragons, at least for now. Nine Dragons at the end of 2022 reported 14.8 million tonnes/yr of containerboard capacity and 2.6 million tonnes/yr of consumer packaging capacity. Nine Dragons also operates 5.2 million tonnes/yr of printing and writing, and specialty paper and pulp capacity. What’s more, Nine Dragons at the end of 2022 also said that it planned to add another 6.2 million tonnes/yr of capacity in packaging board in China and in Southeast Asia. The company makes linerboard in the US at both the Biron mill in Wisconsin and also in Rumford, ME.

Related to the Smurfit WestRock announcement, some US contacts told P&PW in the last month they heard rumors about a big “mega-deal” for containerboard that was coming. They named only one of the parties involved in this week’s announcement.

One said on Sept. 6: “This could be it! The real deal.”

“If this happens, which it makes sense, it will make the Smurfit-Stone deal (in November 1998) full circle, meaning (Smurfit Kappa) will be buying the same assets twice,” another US linerboard supplier said.

If completed, the deal could be a grand US return for Smurfit Kappa CEO Tony Smurfit or at least the Smurfit family name. Tony Smurfit’s father, Michael WJ Smurfit, did the mega-merger involving Ireland’s Jefferson Smurfit and the US’s Stone Container in late 1998. That deal established the Smurfit-Stone company as one of the largest containerboard producers in the US. RockTenn later acquired Smurfit-Stone in 2011 for $3.5 billion and after a merger with Mead/Westvaco in July 2015 became WestRock. In Europe, Jefferson Smurfit in 2005 merged with Dutch rival Kappa Packaging, establishing Smurfit Kappa.

Last year, Smurfit Kappa CEO Tony Smurfit was selected as the International CEO of the Year at the Fastmarkets PPI Awards event in Lisbon. One reviewer described Smurfit the leader as “a global thinker with an extraordinary human touch.”

WestRock CEO David Sewell was named to the top spot at the company in March 2021, replacing Steve Voorhees. Voorhees had completed the acquisition of KapStone Paper and Packaging in November 2018.

Sewell had been a president/COO at The Sherwin-Williams paint company. Prior to Sherwin-Williams, Sewell spent 15 years at General Electric.

WestRock’s capacity share is about 20% in North American containerboard. International Paper’s (IP) share is 30%, ranking it as the largest containerboard producer and corrugated boxmaker in North America. It was also IP that in 2018 tried and failed to acquire Smurfit Kappa. Since then, Smurfit Kappa has grown, with about an 18% margin annually over the last four to five years.

Westrock’s Grupo Gondi share purchase and internal integration

In December 2022, WestRock purchased the full 100% share of Grupo Gondi in Mexico. Smurfit Kappa also operates a containerboard business in Mexico, including a mill in the Mexico City area.

Since the Gondi purchase and even before, WestRock has been increasing its integration for the company’s internal containerboard to corrugated converting system. This year alone, the company shut seven corrugated converting plants and by yearend will have closed down two mills with linerboard capacity in North Charleston, SC, and Tacoma, WA.

Before the North Charleston and Tacoma shuts, WestRock in the last two years also permanently closed linerboard and corrugating medium capacity at mills in Panama City, FL, and Minneapolis-St. Paul, MN. The company retired three old machines in Florence, SC, and replaced them with possibly the largest kraft linerboard machine in North America – a 710,000 tons/yr unit that started rolling in fourth-quarter 2020.

“WestRock already supplies a good chunk of tons to (Smurfit Kappa) in the Latin America markets, plus the two are already present in Mexico and Brazil, strengthening the two largest markets,” a linerboard supplier contact said.

“I think the (WestRock) board will vote yes, but let’s see the deal structure,” the contact added.

WestRock also is the second largest consumer packaging boxboard and folding carton business in North America, behind Graphic Packaging, and is the largest unbleached kraft packaging paper producer in North America with a 50% share. Further, the company ties together the containerboard/consumer packaging board/and packaging paper units with converting equipment that it can sell downstream to its board customers.

In a move to increase internal integration, the company plans the startup in November of a new corrugated plant, either next to or at the site of the company’s large containerboard and kraft paper mill in Longview, WA. By putting the box plant extremely close to the containerboard machines, WestRock will reduce transport cost for its boxes, duplicating a model that has been popular for years with Pratt Industries in the US.

WestRock’s integrated containerboard and corrugated converting business revenue last year was $9.3 billion, consumer packaging was $4.97 billion, global paper and board sales were $5.93 billion, and distribution $1.4 billion.

Most of Smurfit Kappa’s $13.5 billion in revenue last year came from its broadly-developed containerboard and corrugated converting business. WestRock’s 2022 revenue increased 13.9% to $21.257 billion. Smurfit Kappa’s increased 27% to $13.502 billion.

WestRock’s containerboard capacity is 8.98 million tons, following the upcoming closures of its North Charleston and Tacoma mills. The company’s consumer packaging capacity is 4 million tons and its unbleached kraft paper bag capacity is just less than 1 million tons. Total board and packaging paper capacity for WestRock is about 14 million tons. Smurfit Kappa’s global capacity is 9.1 million tons.

This article was taken from PPI Pulp & Paper Week, our newsletter for pulp, paper and packaging market news and prices for North America. Speak to our team to learn more about our news and market analysis, prices, forecast and more.

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