Source: DS Smith

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Packaging giants Mondi and DS Smith have agreed terms for a £5.1bn deal that will create “global leader in flexible packaging”.

The boards of the respective companies have reached an agreement in principle on the key financial terms of a possible all share offer by Mondi for DS Smith.

Under the deal Mondi shareholders would own 54% of the enlarged group and DS Smith shareholders would own 46% of the issued and to be issued share capital of Mondi.

Based on Mondi’s closing share price of 1,381 pence per share on 7 February 2024 (the day prior to the commencement of the offer period), the terms of the combination would represent an implied value of 373p per DS Smith share and a premium of 33% to its closing price of 281 pence per share on 7 February.

Philip Yea would be chair, Andrew King would be the CEO and Mike Powell would be the CFO of the enlarged Mondi Group.

Three non-Executive directors of DS Smith are expected to join the enlarged Mondi Group Board.

The companies stated: “The Combination is an exciting opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions, with complementary geographic footprints, leading customer relationships, a strong balance sheet and cash flow profile, and the potential to deliver substantial benefits to respective shareholders, customers, employees and related stakeholders.”

It said key benefits included a highly complementary geographic footprint creating a leading player in corrugated packaging across Europe and a market leading, well located converting network, focused on delivering innovative solutions for customers.

The combination, the companies said, would strengthened their ability to serve global FMCG customers, leveraging proven innovation capabilities of both Mondi and DS Smith;

It expects to generate significant value creation for both Mondi and DS Smith shareholders from “substantial” synergies.

Mondi and DS Smith are currently undertaking an exercise to validate the quantity of synergies which they believe will arise from the combination and intend to publish their estimated quantity of any synergies together.

Morning update

HelloFresh has posted a drop in headline sales and profits and warned profits in 2024 will be lower again than in 2023.

Total 2023 revenues for HelloFresh are expected to amount to approx. €7.6bn, marginally down on the €7.61bn of 2022, but corresponding to constant currency growth of 2.8%.

Adjusted EBITDA is expected to amount to €448m compared to €477m in the previous year.

The group said both figures are in line with its previously issued outlook.

For 2024 the company is targeting constant currency revenue growth of between 2% and 8%.

Within its ready-to-eat product vertical, which is currently delivering a 50% year-on-year growth rate, the company expects to continue capitalizing on strong demand, as it continues to ramp-up production capacity.

For meal kits, which currently experience in percentage terms a negative revenue growth in the high single digits, the company expects to increasingly close the negative volume and revenue gap compared to the corresponding period in 2023, as it progresses through the year.

The company expects the results of ongoing investment into its physical and digital customer experience to contribute to this trend, as well as increasingly easier prior year comparative figures.

From a segment perspective, the company expects its North America segment revenue to grow at a higher rate than its international segment, driven by the higher share of ready-to-eat of total North America segment revenue.

HelloFresh expects adjusted EBITDA for the fiscal year 2024 below the level reached in 2023, targeting between €350 and €400m.

This downgrade is primarily elevated marketing expenses and costs related to ramping up ready-to-eat production capacity.

The figure also reflects some fixed cost deleveraging impact due to lower volume, the ramp-up of two key new fulfillment centers in the UK and Germany/Austria/Switzerland and further investment in products.

The group also withdrew its mid-term ambition of €10bn in revenues and €1bn in adjusted EBITDA by 2025.

It stated: “Given the very different operating environment compared to the time when the company had first set its mid-term targets, the management board of the company re-evaluated the mid-term business plan and concluded on that basis today that it would be unlikely that the HelloFresh Group would reach its previously announced mid-term ambitions.”

On the markets this morning, the FTSE 100 has edged down 0.1% to 7,684.3pts.

Risers include DS Smith, up 7% to 346.5p, Virgin Wines, up 2.5% to 39p and McBride, up 1.6% to 92p.

Fallers include Just Eat, down 3.6% to 1,099p, Ocado, down 2.6% to 446.6p and Cranswick, down 2.3% to 3,940p.

Yesterday in the City

The FTSE 100 closed up 0.2% yesterday to 7,692.4pts.

Risers included Domino’s Pizza Group, up 5.1% to 367.6p, Ocado, up 4.7% to 458.3p, DS Smith, up 3% to 325.2p, Fevertree Drinks, up 2.2% to 1,197p and Pets at Home, up 2.1% to 279.2p.

The day’s fallers included Nichols, down 2.8% to 1,035p, Compass Group, down 1.6% to 2,152p, Science in Sport, down 1.6% to 15.8p, THG, down 1.1% to 60.3p and Associated British Foods, down 1.1% to 2,243p.