The recycled packaging firm, DS Smith, has launched an agreed bid for SCA Packaging, the second biggest packaging business in Europe.
DS Smith, with a market capitalisation of around £0.9bn, is paying €1.6bn (£1.3bn) for the Swedish company, excluding SCA's kraftliner assets.
The purchase will be funded from new and existing debt as well as an underwritten £466m rights issue.
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The new shares will be offered to shareholders at 95p each on the basis of 9 new shares for every 8 shares currently held.
The reverse takeover needs to be approved by shareholders but, given the support the company has had for its rights issue, this looks probable; shareholders including 14.6% stakeholder Standard Life Investments, have already indicated their approval of the acquisition and the accompanying rights issue. Shareholders have already committed to sub-underwrite more than 50% of the rights issue.
DS Smith believes the acquisition would be earnings enhancing and that, while the purchase would increase gearing, the net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio should be back down to 2.0 by the end of the first full financial year following completion.
The acquisition should deliver annualised pre-tax cost synergies of at least €75m per annum and cumulative capital expenditure and working capital benefits of at least €40m by the end of the third full financial year following completion, the bid announcement said.
Commenting on the acquisition, DS Smith's Chief Executive, Miles Roberts, said: "This is an exceptional opportunity to create value for shareholders by becoming the leading recycled packaging company across Europe".
"SCA Packaging is a well invested business with long positions in recycling and packaging and short paper capacity that is very complementary to our strengths," Roberts added.
The market gave the thumbs-up for the transformational deal, with the shares rising 11.4p to 215p in early trading.
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