Smurfit Kappa, a paper and packaging company, is set to merge with US-based WestRock, creating a company worth over $20 billion. The merger has cleared all regulatory hurdles and the company will begin trading in New York on July 8. The combination of the two companies is expected to bring in at least $400 million in pre-tax synergies in the first year.
The merger has already influenced the company’s stock, with shares gaining over 5% following the news of the integration into the S&P Dow Jones indices. The move to list in New York is part of a trend seen among European companies looking to attract higher valuations from American investors.
The fundamentals of Smurfit Kappa remain positive, with the combined company expected to increase adjusted annual profits to around $5.5 billion. Deutsche Bank analyst Kevin Fogarty rates the company a Buy with a price target for London-listed shares at £42 ($53), implying a gain of more than 18% from current levels. Fogarty believes that improving industry volume and price dynamics could further boost share price performance.
While investors initially had reservations about the merger in 2023, the market backdrop has since improved. The COVID-19 era posed challenges for paper and packaging companies, but demand has rebounded faster than expected. Smurfit Kappa shares have gained almost 30% since the sell-off last September, while WestRock is up over 50% during the same period.
Despite potential risks such as a deteriorating macroeconomic environment, industry overcapacity, deflationary pressures on prices, and integration risks from the merger, the bullish thesis on Smurfit Kappa is worth considering. The company’s strong positioning in sustainable packaging and positive outlook for future growth make it an attractive option for investors.
In conclusion, Smurfit Kappa’s merger with WestRock presents an opportunity for investors looking to capitalize on the company’s growth potential in the paper and packaging industry. The combined company’s expected synergies and positive fundamentals make it an appealing investment option, with analysts forecasting further upside potential in the stock price.
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https://www.barrons.com/amp/articles/stocks-smurfit-westrock-nvidia-listing-10614318