DS Smith in big French acquisition

7th Jul 2010 07:52

Paper and plastic packaging firm DS Smith is to buy Otor, a corrugated packaging company based in France.The Otor Group has a complicated structure, consisting of Otor SA, which is listed on the NYSE Alternext Paris bourse, and Otor Finance, a holding company for the Carlyle Group which owns 94.75% of the issued share capital of Otor SA.The total consideration for the proposed acquisition, including a mandatory offer for the minority stake not covered by the binding offer, is €247m (£206m), equivalent to €8.97 per Otor SA share.The consideration will be satisfied in cash and the assumption of Otor's existing debt. The cash element will be funded through a combination of existing and new committed bank facilities and the proceeds from a placing of up to 9.99% of new ordinary Smith shares to raise up to £47m. The price at which the shares will be placed will be determined after the book build process has been completed.The board of DS Smith believes that the combination of the two companies satisfies a number of key strategic objectives, in particular the development of a strong continental European corrugated packaging business focused on the fast moving consumer goods sector, while significantly strengthening DS Smith's French presence. The company expects to achieve total cost synergies of around €9.3m (£7.7m million at the prevailing exchange rate) in the second full financial year of ownership.The group also expects to achieve margin and earnings enhancement and a return on the investment in Otor above DS Smith's weighted average cost of capital, in the first full financial year of ownership."Extensive due diligence gives us confidence that Otor is a high quality business with structural growth opportunities, notably in shelf-ready packaging where penetration is markedly lower than in the UK," said DS Smith's chief executive, Miles Roberts.