Smurfit Kappa rejects 'opportunistic' takeover bid

These are exciting times in the world of packaging.

Consumer goods manufacturers are grappling with the need to move away from plastic , which can be difficult to recycle, towards cardboard, which can, pushing up demand for the latter.

In both developed and emerging markets, e-commerce is also stimulating demand, while the shift from restaurants to takeaway meals is providing another spur to growth.

That is the backdrop to today's news that the Irish packaging giant Smurfit Kappa (Frankfurt: SK3.F - news) , a member of the FTSE 100 since December 2016, has rejected an "opportunistic" takeover approach from International Paper, America's biggest paper and packaging company.

The other recent development to keep in mind is that, just over a month ago, WestRock, the second-largest player in the US market, agreed a $3.5bn takeover of smaller rival KapStone.

This is an industry that is coming together rapidly: KapStone had come from nowhere to become a business with annual sales of more than $3bn inside a decade by mopping up a number of its competitors, while WestRock had been created by the merger in 2015 of MeadWestvaco and Rock-Tenn, two other big industry players.

International Paper, which has 32% of the US market, was in danger of losing its market leadership.

With (Other OTC: WWTH - news) the US paper and packaging market becoming ever more concentrated, further acquisition opportunities at home were unlikely for Memphis-based International Paper, which has a stock market valuation of $24bn.

Hence its interest in Smurfit Kappa which, despite today's 20% surge in the shares, remains a business barely a third of the size of its US suitor with a market valuation of €8.2bn.

Smurfit has an 18% share of the corrugated cardboard market in Europe, compared with the mere 4% enjoyed by International Paper, so acquiring it would immediately give the American company greater geographic diversity.

International Paper will have also noted how, in Europe, producers like Smurfit have been more successful during the last couple of years in pushing through price increases to their customers than they have traditionally been.

International Paper may also feel this is a good time to pounce because, like many big US companies, Donald Trump's tax cuts mean it has more money to spend.

So far this year already, there have been around $325bn worth of takeover bids, many of them by large US companies.

According to the data provider Dealogic, the majority of these have been in cash, rather than in shares.

That is something that will not be lost on many of Smurfit's shareholders who, even if they were minded to support a takeover, might not necessarily be allowed to receive the American company's shares in return.

Smurfit itself is an Irish institution and one that has created the fortune of one of the country's richest and most famous families.

Ironically, despite being indelibly linked with Irish high society, the family actually hail from the UK.

John Jefferson Smurfit, its founder, was born in Sunderland and was originally a tailor. The business dates back to a box making factory established in Rathmines, Dublin, in 1934. But it was not doing well.

The family of Mr Smurfit's Belfast-born wife, Ann, owned a stake in the factory and, having seen his success establishing a chain of tailor's shops, he was invited to take over running the business.

Mr Smurfit Snr's son, Michael, later joined the business and led its rapid expansion following its flotation on the Dublin stock market in 1964.

Sir Michael told the Irish Times in 2014: "He saw that I had the right stuff to take over the company and he said he had run out of puff. [I said] if we don't get mass, we are going to be buried by England - that is how we started with takeovers."

On three separate occasions, in 1968, 1970 and 1973, the company doubled its size via takeovers.

Sir Michael, who succeeded his father as CEO in 1977, was supported by a number of family members, including his brothers Dermot - whose children include the actress Victoria Smurfit - Alan and Jeff.

And, although when Sir Michael stepped down in 2002 he was succeeded by Gary McCann, a third generation of the family is now at the helm of the company in the shape of Tony Smurfit, Sir Michael's son.

The biggest moment in recent years came when, in 2005, the old Jefferson Smurfit merged with its Dutch rival Kappa Industries.

It has carried on growing since, including three deals last year alone in Russia, Greece and Portugal.

This is a sector in which big is beautiful. The imperative for more takeovers - Smurfit's fellow FTSE 100 packaging companies Mondi (Frankfurt: KYC.F - news) and DS Smith (Frankfurt: 877238 - news) have also seen the share prices soar today - is not going to go away.