DS Smith puts case for French packaging takeover

By Guy Montague-Jones

- Last updated on GMT

Related tags Ds smith Stock market

DS Smith has outlined its reasons for acquiring the French corrugated packaging company Otor ahead of a shareholder vote later in the month.

In July the UK-based company announced the €247m (₤207m) takeover, which is subject now to regulatory approval and a shareholder vote.

In an effort to win over shareholders, DS Smith chairman Peter Johnson sent out an 83-page circular explaining the rationale for the move and the potential pitfalls.

Margin improvement

Johnson said bringing Otor into the DS Smith fold offers up the potential for significant advances in profitability.

“Due to its product mix, Otor operates at significantly higher margins compared to DS Smith and the combination will result in margin improvement for the enlarged group,”​ said the chairman. “The impact will be further enhanced by the significant cost synergies which the Board envisages can be extracted from the two businesses.”

In addition, DS Smith sees the Otor acquisition as an opportunity to build its presence in the French market for corrugated board, which it said was estimated to be worth €23bn in 2008.

French market

The company said that despite a slowdown over the past couple of years the French FMCG corrugated packaging market is expected to return to annual growth of 1.4 per cent over the next four years. Exposure to the food and grocery market is particularly positive as sales of corrugated packaging in the sector maintained growth throughout the course of 2008 and 2009.

Acquiring the French-based Otor also means less reliance on the UK. Johnson said: “Following closing, DS Smith will be materially less reliant on its business in the UK, the largest contributor to DS Smith’s operating profits.”

Nevertheless, certain risks factors face DS Smith and the enlarged group. The company warned in its circular to shareholders that economic conditions, energy and raw material price volatility and environmental regulation could all have a negative impact on the group.

Overall though, the DS Smith board unanimously recommends that shareholders vote for the acquisition under the terms agreed. With support of shareholders, DS Smith predicts that the deal will be closed in the fourth quarter of 2010.

Related topics Processing & packaging

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