Shares of Smurfit Kappa skyrocketed by nearly 4.7% in Dublin’s market on Wednesday. The surge was allotting to reports that the upcoming enlarged entity, resulting from its merger with American counterpart WestRock, is likely to feature in S&P Dow Jones indices once the merger is finalised the following month.
The S&P 500, a benchmark tracked extensively by global investors, is among the indices that the group anticipates to join. According to S&P Dow Jones, for the purposes of index inclusion, WestRock will be acknowledged as the surviving merged entity when the two firms merge in a colossal deal worth more than $25 billion (or €23.3 billion) to form Smurfit WestRock. This is despite Smurfit Kappa being the company that technically takes over WestRock.
The deal is set to conclude on July 5th, whereupon Smurfit WestRock is expected to relinquish its Irish stock market listing and transition its chief listing from London to New York. WestRock is currently a member of the S&P 500 index. However, S&P has expressed caution, stating in its Tuesday release from New York, that the intention to enroll Smurfit WestRock in its index is merely “a preliminary announcement,” hence it may undergo alterations.
Market analysts, including Morgan Stanley’s Brian Morgan, have stated that the announcement of Smurfit WestRock’s potential enlistment in the S&P indices came much earlier than anticipated. Despite the initial boost, by noon, Smurfit Kappa’s stocks had retreated slightly, registering a growth of 3.5%.
In related news, CRH, which used to be the largest firm on the Iseq in Dublin, exited the Irish market in September last year and relocated its key listing from London to New York in a bid to enter the S&P 500. According to CFO Jim Mintern, it could take the company around 12 to 18 months to get included in the S&P indices.
Similarly, Flutter Entertainment, the betting company and owner of Paddy Power, is also aiming for a spot in S&P indices after switching its main listing from London to New York in May. The company had exited the Irish stock market back in January.
Last Thursday, shareholders of Smurfit Kappa and WestRock gave a green signal to the impending merger at separate gatherings in Dublin and Atlanta, Georgia.
Smurfit Kappa’s trading on the Dublin stock exchange will conclude at the end of the business day on July 2nd, ahead of the company’s impending merger. This marks a cessation of the foremost Irish multinational group’s 60-year-long relationship with the exchange, save for a time in the 2000s when it was owned by private equity.
In essence, the WestRock agreement is a takeover by Smurfit Kappa, resulting in its shareholders securing a slight majority (50.4%) stake in the expanded group. This group will retain its Dublin headquarters, with key leadership roles maintained by the Chief Executive Tony Smurfit and Chief Financial Officer, Ken Bowles.
When compared to conditions in September when the merger proposal was made public, the industry’s future looks markedly brighter. Initially, producers of boxes were grappling with a drop in demand following a worldwide increase in purchases of tangible goods during pandemic lockdowns, ranging from televisions to garden furniture.
The industry has also seen benefits from other consolidatory moves. For instance, International Paper, a US-based company that had unsuccessfully bid for Smurfit Kappa in 2018, consented in April to purchase UK-based DS Smith.