DS Smith Will Acquire Europac At 16,8 €/Share (10.1x EV/Ebitda)

DS Smith has lodged a bid for Spanish paper and packaging company EuropacDS Smith has lodged a bid for Spanish paper and packaging company Europac

DS Smith has lodged a bid for Spanish paper and packaging company Europac, valuing the latter at 1.9 billion euros. The UK firm has offered 1.667 billion euros for 100% of Europac’s capital (16,80 euros/share).

DS Smith will finance most of the operation via a 1 billion sterling capital hike. They are estimating cost synergies of some 50 million euros/year before tax, with the possibility of obtaining more. They hope the operation will be EPS enhancing from the first year. Shareholders who control directly or indirectly 52.83% of Europac’s capital have committed to irrevocably accepting the bid and will try to ensure the Board also accepts the offer for 6.14% of the treasury stock. Other shareholders representing an additional 12% of capital have also accepted the bid.

DS Smith has made sure it has the necessary funds to meet the established compensation. This will be a total cash payment and will be backed by one or more guarantees from a bank and/or one or more cash deposits set up in a bank.

DS Smith has made the commitment to pay Europac 69.3 million euros in the event of withdrawing its offer, while the Spanish company will compensate DS Smith with 15.6 million euros if another alternative acquisition emerges. Europac’s share price has revalued 136% over the last year.

Renta4 analysts believe the offer is attractive, as it implies a high multiple (EV/EBITDA R4 2018e 10.1x) and premium of 7.8% compared to the stock’s closing price last week.

“We expect the shares will trend towards the offer price (16,80 euros). We recommend accepting the offer.”

The transaction is conditional on obtaining at least 50% of Europac’s capital, as well as the approval from the European Commission. The request for approval will be sent to the CNMV for its green light on July 5. Europac will vote on the operation at its AGM on June 28 and DS Smith will do the same at its AGM on July 11. So in terms of the calendar, the operation could be closed by year-end.

“Given that it has the support of the main shareholders and is attractive, we believe it’s unlikely another competing offer will emerge.”

Meanwhile, according to Bankinter experts, dividends paid in the interim will not be discounted from the offer price.

“Europac usually pays its final dividend in July (0,225-0,3 euros – a yield of 1.8%). So we would wait until the dividend is paid and then, depending on the market price, sell the shares in the market or accept the bid.”

Europac shares have revalued 39% so far in 2018 and 136% over the last year.