DS Smith’s SCA deal is a ‘game-changer’, say analysts

DS Smith’s planned £1.4bn acquisition of SCA Packaging is a “game-changer” for the corrugated business, analysts have said this morning.

generic corrugated imageCommenting on the deal, which was announced this morning and will see DS Smith double in size, Nicholas Mockett of Moorgate Capital said that it would lead to better performance for the company and other players in the market.

“This is a game changing deal for DS Smith. It shows [chief executive] Miles Roberts’ intent to focus the business on what he believes it is best at.

“Mergers are inevitable in the packaging industry and the synergies are a key deal driver. This will help DS Smith serve their customers over a wide geographic area and, arguably more importantly, give them enhanced leverage in the recycling market.

“With this industry concentration we should expect to see better performance for DS Smith and other industry leaders. It leaves SCA to focus on its core businesses including hygiene.”

An analyst’s note from Bank of America Merrill Lynch said that the deal was “good news” for the other containerboard and corrugated players and “shines the light on broader sector consolidation again”.

The note also speculated that Smurfit Kappa could be a buyer, in time, of the two kraftliner mills that SCA has not sold to DS Smith.

A note from Goodbody said: “This represents a positive deal which will make DS Smith the second largest corrugated player in Europe with close to 3m tonnes of corrugated capacity.

“We believe the deal will be well received as DS Smith demonstrates its ambition and makes significant strides in reaching its strategic goals. Overall, such large scale consolidation within the industry is a positive for the sector.”

More reaction to follow…