On January 31st, International Paper, based in the United States, finalized the acquisition of the British paper and packaging group DS Smith. This creates a sector giant and a global player in fiber-based packaging solutions in the North American and European markets. The two companies estimate that the combined pro forma annual revenue will be around $28 billion. International Paper is looking to strengthen its European presence in the paper and packaging sector with the deal, within a consolidating sector.
International Paper received EU approval for this £5.8 billion ($7.2 billion) acquisition of DS Smith, with the condition that it sell certain operations to resolve competition issues.
The US-based packaging company had to agree to sell five of its plants in Europe. These include three facilities in France, one in Portugal, and one in Spain.
International Paper and DS Smith are two vertically integrated paper and packaging companies. However, the Commission’s investigation revealed that the transaction, as originally notified, would have reduced competition in the markets for the production and supply of corrugated sheets in northern and western Portugal; heavy-duty corrugated sheets in northeastern Spain; and corrugated boxes in northwestern France. Specifically, the Commission noted that the transaction would have led to high combined market shares and significant concentration levels in several local markets. The Commission also emphasized that, after the merger, there would not have been enough alternative competitors to exert sufficient competitive pressure on the merged entity, which would have resulted in higher prices for consumers in the affected markets.
To address the Commission’s concerns about competition, the parties proposed selling five International Paper plants in Europe: three sites in Normandy, France (i.e., one box plant in Saint-Amand-Villages, one box plant in Mortagne, and one sheet plant in Cabourg), one box plant in Ovar, Portugal, and one box plant in Bilbao, Spain. These commitments fully address the Commission’s concerns, eliminating entirely the overlap between the parties’ activities in the corrugated box markets in northwestern France. The commitments also eliminate the overlap in the supply of corrugated sheets in local markets in Portugal and Spain, and, therefore, any concern about vertical foreclosure with regard to corrugated boxes. Following positive feedback from the market test, the Commission concluded that the transaction, as modified and integrated with the commitments described above, would no longer raise competition concerns.
“International Paper and DS Smith,” says Teresa Ribera, Executive Vice-President for Clean, Just, and Competitive Transition EU, “are two leading companies in the paper and packaging sector. This deal, as initially conceived, would have further increased concentration levels in the local markets for the supply of corrugated sheets and boxes in Portugal, Spain, and France. It would also likely have led to higher costs for companies relying on boxes to deliver their products, and ultimately for consumers buying them. The divestitures made by the parties address all our concerns, ensuring that these markets remain competitive.”