Smurfit Kappa cleared for takeover of Mondi UK corrugated ops

18-Apr-2010 - Last updated on 19-Apr-2010 at 10:32 GMT

Related tags Europe

Smurfit Kappa Group’s (SKG) proposed acquisition of Mondi Group’s corrugated packaging division has been given the go-ahead by UK competition authorities. But the deal will not be a game-changing one for the market, said analysts.

The UK Office of Fair Trading (OFT) announced Friday that it had cleared the anticipated takeover by SKG of the South Africa-based company’s corrugated business.

SKG confirmed at the end of January that Mondi could also buy its sack converting operations as part of the deal, adding there was “no certainty that any such transaction will occur”. But the OFT green light last week removes one potential barrier that would include the acquisition of three UK facilities currently owned by Mondi.

“This acquisition would not be a game-changing event but it would consolidate SKG’s position in the UK corrugated market,” Lars Kjellberg, analyst for Credit Suisse, told FoodProductionDaily.com.

The takeover, should it go ahead, would allow SKG to improve its operational efficiency and cut costs, he added.

“It would of course increase its market share and cement its position as UK number two to DS Smith Packaging in the corrugated sector,” said Kjellberg. “It is a sensible deal for both companies. For SKG, it would remove a smallish competitor - but will not an earth-shattering for the market. For instance, it will not put SKG in a position to dictate market price – which is likely to have played a part in the OFT's approval.”

He added that the move would also fit with Mondi’s known desire to exit the corrugated market in Western Europe.

“Mondi hasn’t really thrived in the corrugated sector in Western Europe and has had an exit plan in place for some time. Instead, the company wishes to be more active in central and eastern Europe (CEE),” he said.

Earlier this year, Mondi said it had completed the switch of its corrugated and recycled containerboard packaging operations away from Western Europe in a bid to combat overcapacity in region and cut costs. The announcement came as part of an ongoing trend that has seen packaging firms seek to establish bases in the emerging markets in Turkey and CEE on lower overheads and the potential for stronger growth.

SKG declined to comment on the decision and Mondi could not be reached prior to publication.