DS Smith sells office products division

6th Jul 2011 08:28

DS Smith, the recycled packaging specialist, has agreed a sale of its Spicers division, which sells office products in the UK and Europe, to Spanish stationers Unipapel for £200m.Following the announcement by DS Smith, Better Capital, in a separate press release, said the BECAP Fund has agreed to buy the UK and Irish units of Spicers from Unipapel, on condition of completion of purchase of Spicers from DS Smith by Unipapel.The fund has committed £40m to a wholly owned special purpose vehicle set up to effect the transaction, Better Capital said. The conditional agreement is proving apt in this case as DS Smith has admitted that it must still obtain regulatory approval and also consult with Spicers' work councils to allay possible concerns among the workforce. If the sale falls, DS Smith will be liable for break fees of up to £11.2m.If all goes to plan though, the proceeds from Spicers will be used to pay down debt and free up cash for later investment.DS Smith claims the deal with Unipapel will allow it to focus on its core packaging business. As at 30 April 2011, the gross assets of Spicers were £235m and the gross liabilities were £126m. The business made an operating profit of £24m on revenues of £715m in the year to 30 April 2011.Miles Roberts Chief Executive of DS Smith said: "The proposed sale of Spicers represents a key strategic step in the streamlining of the DS Smith group to become focused on recycled packaging for consumer goods."The impending sale has prompted the company to revise some of its fiscal targets. In particular, the return on sales target of 6% - 8% would be revised to 7% - 9% if the sale goes through. The other targets, specifically for volume growth of 3%, return on average capital employed of 12% - 15%, operating cash flow (before growth capital expenditure) of over 120% of operating profit and net debt to be under 2.0x earnings before interest, tax, depreciation and amortisation, would be maintained. Following completion of the proposed disposal, DS Smith estimates its group cost of capital would be around 10.5%. The pension trustees of the DS Smith UK scheme have indicated that, following completion of the proposed disposal, the previously agreed ten-year pension deficit reduction payment schedule would be accelerated by one year. In early London trading DS Smith shares were up 2.64 percent.BS