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15 July 24
Does the Smurfit Kappa/WestRock merger make any sense?
By Jim Thompson
So now that Smurfit Kappa has acquired WestRock (I wouldn't call it a merger) what happens next?
This combined company has assets on at least three continents--Europe, North America, and South America.
What are the country risks? Is one diminishing the value of US assets by coupling them with assets in, say, Colombia? Many years ago, it was reported the manager of Smurfit Kappa's Venezuelan mill was spirited out of harm's way in the trunk of a car when the government took over their business there.
What are the synergies? I have been struggling to find them. Their pulp source is either their own produced virgin or recycled fiber. Definitely locally sourced materials with local pricing.
Their markets seem to often be local, too. Some exceptions may be international behemoths in the retail trades such as Procter & Gamble, Unilever, Nestle, etc. Try cutting a better deal to your advantage with customers like this.
Can you get a better deal on spare parts, wear parts and so forth? Maybe, but what part of the total input costs are these?
Smurfit has a technology center in the Netherlands. How long will it take them to overcome resistance to their ideas in North American mills? Just start with metric vs. US measurement systems. I've been in meetings discussing these, it is like two languages being spoken.
Then you have Irish, UK, EU, US, and a myriad of Latin American country business laws to follow. Most of those have differences, although one advantage may be the adoption of EUDR which we mentioned here last month. However, that is only a small portion of the legal mashup that will need to be dealt with every day from now on.
Smurfit came to the US in the mid-80's. That didn't turn out so well. Then they came back and bought tiny Orange County Container here in 2014. That may help them understand the US.
Unfortunately, WestRock isn't tiny and one finds it is a smashup of several companies from the past, which may be to some extent already operating in their own legacy silos.
To me, this is a very much wait and see situation. I wish them well.
Note: Neither I or anyone on the Paperitalo staff own any individual pulp and paper stocks.
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