Smith (Ds) Plc Acquisition -2-

7th Jul 2010 07:00

will necessarily match or exceed the historical or published earnings of DS Smith. The ordinary shares referred to in this announcement have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended and may not be offered, sold or transferred, directly or indirectly, within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any state or other jurisdiction of the United States. This announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire, nor shall there be any sale of, the ordinary shares in the capital of the Company in any jurisdiction in which such offer, solicitation or sale would be unlawful. The ordinary shares have not been, and will not be, registered with any regulatory authority of any state within the United States. No money, securities or other consideration is being solicited and, if sent in response to the information herein, will not be accepted. DS Smith Plc Introduction The Board has announced today that DS Smith has submitted a binding offer for the Proposed Acquisition of Otor, a leading corrugated packaging company in France. Given its size, the Proposed Acquisition will be, inter alia, subject to the approval of DS Smith's shareholders at a General Meeting. A circular, containing a notice convening this meeting, will be posted to DS Smith shareholders as soon as practicable following this announcement. Information on DS Smith DS Smith is an international packaging supplier and office products wholesaler headquartered in England which recently reported adjusted operating profits of GBP94.0 million on sales of c.GBP2,071 million for the financial year ended 30 April 2010. DS Smith's ordinary shares are admitted to the Official List of the UK Listing Authority and to trading on the London Stock Exchange and DS Smith is a constituent of the FTSE 250. The Company's businesses are managed within four segments; UK Paper and Corrugated Packaging; Continental European Corrugated Packaging; Plastic Packaging; and Office Products Wholesaling. The most recent Annual Report was published on 16 July 2009 and is available to download from the Company's website www.dssmith.uk.com. The Annual Report for the financial year ended 30 April 2010 will be published on 15 July 2010. DS Smith has operating locations across the UK, continental Europe, the USA and Australasia and employs over 10,500 people in over 16 countries. The DS Smith Group is highly cash generative reflecting the ongoing focus on cash management. Information on Otor Otor is a French based manufacturer of corrugated packaging, recycled container board, and packaging machines. Otor is headquartered in Paris and has operational facilities consisting of six box plants, two small paper mills, three sheet plants and one box machine fabrication plant. Corrugated capacity and paper capacity are approximately 450,000 tonnes and 130,000 tonnes per annum respectively. Otor Group was formed in 1989 following the merger of several French paper mills and box plants. All of the shares of Otor are listed on NYSE Alternext Paris. Carlyle with LCL acquired control of Otor in 2000 and together they currently hold 94.75 per cent. of its share capital. The remaining 5.25 per cent. of the share capital is held by minority shareholders of Otor (including certain of the Otor directors). The trading record of Otor for the two financial years ended 31 December 2009 is summarised below: +-----------------------+------------+------------+----------+ | Year ended 31 | | 2008 | 2009 | | December | | | | +-----------------------+------------+------------+----------+ | | | | | +-----------------------+------------+------------+----------+ | Sales | | EUR363.8m | EUR315.1m | +-----------------------+------------+------------+----------+ | | | | | +-----------------------+------------+------------+----------+ | Current operating | | EUR30.7m | EUR28.7m | | income* | | | | +-----------------------+------------+------------+----------+ | Margin | | 8.4% | 9.1% | +-----------------------+------------+------------+----------+ | | | | | +-----------------------+------------+------------+----------+ | Cash flow from | | EUR42.2m | EUR70.9m | | operating activities | | | | +-----------------------+------------+------------+----------+ * adjusted for impairments These figures have been prepared in accordance with IFRS and have been extracted from the consolidated financial statements of Otor Finance. At 31 December 2009, Otor Finance had gross assets of c.EUR264.3 million. Background to, and reasons for the Proposed Acquisition Strategy DS Smith continues to focus on its strategic objective of being a leading packaging company in the UK and selected overseas markets with strong businesses in recycled corrugated packaging, paper, recycling and plastic packaging. In DS Smith's UK Paper and Corrugated Packaging segment, the largest segment within Packaging, the focus is on continued operational improvement and the development of DS Smith's principal activities. In the Continental European Corrugated Packaging segment, DS Smith has successfully built on the knowledge derived in serving UK customers to build strong businesses in France, Italy and Poland. In the Plastic Packaging segment, DS Smith is focused on growing in returnable transit packaging and the liquid packaging and dispensing market. The Company's goal in Office Products Wholesaling ("Spicers") remains to build on its strong businesses in the UK, France, Germany and the Benelux region and make steady progress on margin enhancement. Packaging Following the acquisition of the LINPAC Containers Group in 2004, DS Smith has continued to expand its business in its key UK market in particular. DS Smith remains focused on plastic packaging with returnable transit packaging. DS Smith is a leading European supplier of beverage crates, reusable containers and extruded sheet as well as liquid packaging and dispensing, and a leading supplier globally of bag-in-box systems and taps. The Corrugated Packaging market The European market for corrugated packaging in 2008 was estimated to have been approximately EUR23 billion, equivalent to circa 17.5 million tonnes or 33 billion square metres of which the French market is estimated to be 13 per cent.. Demand for corrugated packaging is principally influenced by overall economic activity and manufacturing output. Demand from the FMCG sector continues to benefit from the trend towards the use of shelf-ready packaging ("SRP"), which can be readily converted from its initial role as a protective transit pack into a box or tray that can be placed on display in the retail store. SRP benefits retailers by reducing the manual work involved in loading goods onto store shelves and reducing the amount of damage to goods in store, while enabling products to be presented more attractively. SRP requires more sophisticated packaging manufacturing capabilities for cutting, printing and gluing the corrugated board to form the more complicated box structures. The increased proportion of these higher value-added boxes, often requiring multi-passes within the production process, has contributed to capacity utilisation across the corrugated industry remaining higher than levels that would be indicated by the overall level of demand. Usage of corrugated packaging for the home delivery of products continues to grow in association with the growth of purchasing through the internet. The outlook for the French corrugated packaging business Following a two year slowdown as a result of the recession, sales of French FMCG corrugated packaging are expected to return to a 1.6 per cent. annual rate of growth over the next four years. These sales benefit from exposure to Food and Grocery which is structurally the least sensitive category of consumer spending to economic conditions. These sales maintained growth, at a reduced pace of 0.3 per cent., through the course of 2008 and 2009. Rationale for the Proposed Acquisition The Board believes that the Proposed Acquisition is an exceptional opportunity to consolidate DS Smith's position by creating a leading corrugated packaging company in France. Otor has strong businesses across both corrugated packaging and FMCG products. Improved position in France and opportunity for further continental expansion The Proposed Acquisition will significantly broaden DS Smith's customer base and the market its serves. Otor has many customers including a number of major FMCG companies, to which it is sole or joint supplier. The Enlarged Group will also have the additional opportunity to expand its product offering into other European countries such as Poland and Italy where DS Smith already has a developing business. Higher Group operating margins through product mix and cost synergies 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. This impact will be further enhanced by the significant cost (MORE TO FOLLOW) Dow Jones Newswires July 07, 2010 02:00 ET (06:00 GMT)