Smith (ds) Share Discussion Threads

[bareknee] 12/2/2024 16:42

Buyzantium

I don't know if Packaging Europe has misquoted Jefferies or whether Jefferies has lost the plot but when the article says "The report asserts that DS Smith standalone shares have consistently traded above £3.50 in the last 12 months" it's plain old-fashioned wrong !

Sadly, we've very rarely been over that price in the last 12 months. I'd agree that, to appeal to shareholders, that any deal would have to value us above that sort of price, but the premise put forward in that article on share price is baffling, more so because the rest of the article makes a lot of sense !

[jeffian] 12/2/2024 16:32

After the takeover of RPC, I bought this as an alternative in the packaging market, not expecting it to set the world alight but attracted by the low PR ratio and the dividend. As it is, I'm only just back at breakeven now, so not getting overexcited by the figures being touted, particularly at the lower end. Having said that, if I was happy to buy and hold Smith, with an all-share deal I suppose I should be content to remain a shareholder in the enlarged outfit, effectively retaining my interest in Smith whilst gaining an interest in the Mondi business and any synergies flowing from the merger.

[moorsie2] 12/2/2024 15:12

Great analysis

hxxps://packagingeurope.com/news/what-would-a-merger-between-ds-smith-and-mondi-mean-for-the-packaging-industry/10978.article

[buyzantium] 12/2/2024 15:01

Packaging Europe has a report from Jefferies today, well worth a read. An extract from this lengthy report follows - The report asserts that DS Smith standalone shares have consistently traded above £3.50 in the last 12 months, so any potential offer would need to exceed the £3.50 threshold to appeal to most DS Smith shareholders. Preliminary discussions have ranged from £3.60 to £4.40.

[moorsie2] 11/2/2024 14:55

LLB good luck with your holdings.

The big value here is very industry specific - it's the concept of a balanced internal system. World class paper making capacity balanced off with guaranteed end markets due to their box plant capacity.

Up to now DSS are short ( ie more box capacity than paper) and Mondi are long ( more paper capacity than boxes)

Incidentically the most profitable and successful company in this space over the last 10 years, Snurfit Kappa, championed the concept of balanced vertical integration

[laurence llewelyn binliner] 11/2/2024 14:43

#Moorsie2, I look forward to watching it play out, I am long here but had already pencilled in to double down April 06th in the ISA, which may or may not go my way if the share price runs (or not)...

Economies of scale, amalgamation of some business functions, purchasing power going forward could add considerable savings for a company twice the size and taking out a competitor makes a lot of sense..

As highlighted by another contributor recently, SKG will be watching for sure.. :o)

[moorsie2] 11/2/2024 14:27

LLB - I would expect this is not a recent interest and has been worked on for at least 6 if not 12 months.

It would have been modelled through the paper cycle

The deal value comes from 3 things as far as I can see

1. Synergies, especially from virtical integration

2. Benefits on returns from a more consolidated market

3. Valuation multiples based in the benefits derived from 1 and 2

[laurence llewelyn binliner] 11/2/2024 14:15

#Moorsie2, interesting valuation, Mondi have shown an interest last week at 275 pence which is close to the 5 year low, 2024 profitability has scope to rise from lower energy costs coming in so perhaps there could be more headroom to their bid..

We will of have to wait and see what comes in, and how serious they are.. :o)

[jeffian] 11/2/2024 14:13

The big question, of course, is what are the Mondi shares we are being offered in return for our Smith's shares actually worth? Us older types and those with longer memories will remember the Guinness 'scandal' in which the acquirer was accused of running a share-support scheme to keep its shares artificially high to boost the value of its bid. Of course, there's no suggestion of that here but the point is that an all-share bid only has a value by reference to the acquirer's share price.

It will be interesting to see whether the Smiths board negotiate a cash element to the deal or whether another bidder is tempted to come in and offer a cash alternative.

[moorsie2] 11/2/2024 13:38

Paper packaging is a cyclical industry.

If nothing happened I would sti expect DSS to be worth 380 or so by year end. Purely based on cycles.

Mondi and the institutional shatehders know this.

Therefore my guess is a very compelling view on integration synergies and a higher multiple accordingly. So I can see 420-450 being the range. Much higher does not leave enough value for Mondi shareholders

[laurence llewelyn binliner] 11/2/2024 08:00

Interesting times here now as Mondi will be putting together an all share proposal and will have to come up with their fair value assessment, what that number equates to in Mondi shares we will find out..What is fair value..? well SMDS have been around 300 pence for the last 2 years and it has to be a premium to that or the BOD will not recommend anyone accepts the offer, somewhere near 375 pence for a 25% premium perhaps..?

[alotto] 11/2/2024 07:43

Thanks Jeffian

[jeffian] 10/2/2024 22:47

In an all-share deal you would be offered Mondi shares. The 'value' is a combination of how many Mondi shares you are offered for each Smith share and, of course, what those Mondi shares are worth. If you wanted cash, the only way would be to sell your Smith shares in the market prior to the deal at whatever the market is offering, or sell your new Mondi shares when they are received. The uncertainty over how much this will be worth to Smith shareholders is probably the reason for the muted response to the tentative offer.

[alotto] 10/2/2024 20:50

What happens to the shares in the case of a merger? Do they get paid out or converted to an equivalent value of the merged company?
Is there a cash offer in a merger?

[value king] 09/2/2024 14:15

it looks like I will be giving my long held SMDS away to Mondi then.

[moorsie2] 09/2/2024 13:22

Smurfit Kappa is proof that vertical integration brings best returns through a cycle.

So this tie up is the only game in town for these two companies.

I think they have no other option but to get into bed tpgether

[yump] 09/2/2024 12:40

And if nothing happens the dividend is nice.

[elsa7878] 09/2/2024 10:44

Know the approach is very preliminary but the fact is that SMDS is now in play.

I found the price this morning when it dipped to 306 was too good an opportunity to pass up.

If the approach comes to nothing the shareprice will probably go back to 280-285 - so an approx 7% downside to my purchase price.
If a bid comes in the upside looks to be a minimum of 15% above my purchase price.

On balance it seems to me that 315-320 should be the range until we get some clarity.

[ygor705] 09/2/2024 09:04

I've held both DS Smith and Smurfit Kappa for more than a decade. Whilst Kappa has been a very good investment DS Smith has been distinctly average. Given that their markets are broadly similar I can only ascribe the difference in share price performance to one major issue, management. I'm not expecting that to change and am expecting further decisions to be made that will not be in the best interests of DS Smith shareholders. I think that recent share price reaction suggests that others share my view. The only good news that I see is that sector consolidation is becoming more of an imperative and if Mondi doesn't absorb DS Smith then, eventually, somebody else will. Good luck to all holders.

[laurence llewelyn binliner] 09/2/2024 08:04

Interesting developments here, economies of scale are on the table, larger buying power with purchase pricing leverage, centralising of some management functions, common HR team, we will see what Mondi come in with..#Bareknee, it is called the CMA now, but in this instance I would not expect it to get referred, a merger would not impact national infrastructure/security and consumer choices in the same way as some, ie the VOD/3 deal which is now in progress and has been referred to Gov..

[grahamg8] 09/2/2024 07:23

Analyst consensus before the approach was 360p. Also take a look at the Kappa/West Rock deal. A take over or merger of near equals looks good for the business. A price in the high 300's seems achievable. Currently 308 is not enough to tempt me to sell. Bring on a bidding war.

[jeffian] 08/2/2024 22:38

All-share transactions work best when there is a disparity between the rating of the acquirer and target, so the acquirer is simply able to absorb the profits of the target but immediately get a capital benefit from them being valued at a higher multiple. I'm not sure this is the case here. Two companies of an equivalent rating can only achieve a higher valuation via synergies/cost reductions leading to higher margins. I can quite understand why the market is reserving judgement on the announcement until it all becomes clearer but, in the meantime, the good news for shareholders is that as the board of SMDS have not rejected the approach outright, the company is effectively 'in play' and other sharks may be lured to the scent of blood in the water. Let the feeding frenzy begin. Please.

[bell011] 08/2/2024 19:22

There is massive board overcapacity, certainly in UK....Smiths Jan 24 to 23 production/demand was down 9.9%. Amazon low margin factory filler output continues to decline. Quite a few box and board location closures are inevitable, whether Mondi continues it's interest, International Paper (US) whom have approached Smiths before may well return. Consolidation is necessary .

[bareknee] 08/2/2024 19:09

I'm not as familiar with Mondi as I am with DS Smith. Does anyone have a feeling for how easy, or otherwise, it would be to convince the MMC that a merger wouldn't be reducing competition too much ?