The Boards of Directors of International Paper and Desma announced that the waiting period for their proposed merger under the Hart-Scott-Rodino Act (HSR Act) has expired. The HSR Act is a series of amendments to U.S. antitrust laws designed to provide antitrust enforcement agencies with more time and information to review proposed mergers and thereby promote competition.
International Paper said this is an important step in completing the proposed merger as the expiration will remove the closing barriers of the HSR Act. The completion of the merger remains subject to the satisfaction or waiver of the remaining conditions, including regulatory approval from the European Commission and court approval of the plan. International Paper and Desma still expect the transaction to be effective in the fourth quarter of 2024.
Desma is a leading multinational paper packaging manufacturer that has been in acquisition talks since February, first with Mondi and then with International Paper. On April 16, International Paper, a leading multinational paper packaging manufacturer in the United States, announced that it had reached an agreement to acquire Desma, a leading multinational paper, paperboard and corrugated packaging supplier in the United Kingdom.
The deal, which comes after a bidding war with UK paper packaging leader Mondi, values the company at about $9.9 billion. The acquisition is expected to close in the fourth quarter of 2024. Desma noted that the purchase price represents a premium of nearly 48% to its stock closing price on February 7, just before Mondi first publicly expressed interest in acquiring the company.
“International Paper’s acquisition of Desma will further expand and solidify International Paper’s leading position in the global corrugated packaging market, even if the merger of Smurfit Kappa and Westrock is completed in July,” said Christine O’Keefe, packaging industry analyst at Freedonia.
Overall, global demand for corrugated boxes is expected to grow 2.6% annually to 296 billion square meters by 2027. The biggest opportunities include the e-commerce market, which will see demand for corrugated boxes reach nearly five times the level of 2012 demand in 2022. Growth will remain strong as e-commerce grows its share of retail sales, with demand growing 10% annually. Demand will be driven by the United States and Asia Pacific, which together will account for 71% of absolute growth.
Freedonia Corporate Research analyst Joe Iorillo noted the complementary nature of International Paper and Desma’s geographic businesses, saying: “International Paper’s acquisition of Desma will significantly increase International Paper’s presence in the European market. By 2023, its North American revenue will account for 86% of International Paper’s. In contrast, Desma’s business is more Europe-centric, with the UK and France alone accounting for 30% of Desma’s revenue in fiscal 2023, and another 8% from the US.”
However, if Mondi successfully acquires Desma, its geographical business will remain highly balanced in Europe. “Before International Paper agreed to buy Desma, Mondi had proposed to buy the company, a deal that would have created a very large European corrugated entity but lacked a North American presence,” Iorillo said. “In 2023, Mondi will have only 8% of revenue coming from North America, while nearly 75% will come from Europe.”
In September 2023, when Westrock announced talks with Smurfit Kappa, packaging analyst Mike Richardson correctly observed that packaging industry history shows that large acquisitions tend not to occur in isolation. Looking back at the 2019 spurt of packaging activity surrounding the Berry International-RPC and Bemis-Amcor mergers, he noted at the time that “this could spark some other M&A activity in the paper packaging industry.”
Next, Richardson commented, “While the moves by Westrock-Smurfit Kappa and International Paper-Desma will be the biggest, it appears that some of the other leading players will still have a willingness to merge.”
Jennifer Christ, manager of consumer insights research at Freedonia, noted that both companies stand to benefit as the paper packaging industry firmly establishes its sustainability role in the minds of many consumers. “Overall, consumers rate paper packaging options the most environmentally conscious,” she reported. “77% of consumers believe that buying packaging products that are recyclable or made from recycled materials is important to their lives, so these materials benefit.”
Freedonia Group’s February-March national online consumer survey showed that 54% of consumers said they were more willing to act sustainably in their purchasing and waste habits than last time. ”
In addition, in today’s global economy, supply chains are under tremendous pressure to become more efficient, secure and predictable. As the “small world” becomes smaller and more interconnected, the need for fast, flexible supply chain operations intensifies.
Amid all the new technologies and solutions explored and implemented across the supply chain, one thing remains constant – the enduring relationship between product packaging and distribution, and the superior protection that corrugated boxes provide for the transportation of products from manufacturer to end user.
Corrugated packaging has been used to transport products and prevent them from damage along the way for over 100 years. Engineered to withstand the rigors of shipping and handling, beautiful custom designs offer additional protection, merchandising and branding opportunities. In e-commerce, home delivery makes “beautiful” and functional packaging more important than ever, with shipping boxes sometimes doing double duty as the primary product packaging.
How has corrugated packaging maintained its critical role in supply chains and world trade over the years, improving efficiency even as demands become more complex? Before a product makes it to the consumer’s mind, it must remain in perfect condition. Corrugated packaging combines structural rigidity with cushioning properties to Protects contents from damage. One of the reasons it works so well is its basic structure, which uses flutes in the middle layer to absorb impact.
These flutes are key to the protective properties of corrugated boxes. The arched structure forms rigid columns that are able to support a lot of weight while cushioning the box’s contents. The flutes also act as insulators, providing some protection for products from sudden changes in temperature. The cushioning qualities of corrugated boxes are matched by their stacking strength to prevent damage during shipping.
With innovative designs, boxes can also be sized to fit any product and provide additional functionality as well as branding and marketing benefits. Think smartphone and computer boxes—with customized nooks and crannies to hold parts and components, instruction manuals, and other items. Best of all, corrugated boxes can be printed with attractive graphics to promote brands without compromising their functionality in the supply chain.
Today, sustainability is a must. Corrugated packaging is made from a renewable resource, namely trees grown on sustainably managed farms. At the other end of its life cycle, corrugated is extremely recyclable, with an average recycling rate of 52% for more than a decade.
The corrugated packaging industry regularly conducts life cycle assessments (LCA) to quantify the environmental impact of corrugated packaging. These studies estimate the impacts on land, air, and water based on the average life cycle of corrugated boxes in the United States, from raw materials to box manufacturing, distribution/transportation, and use until scrapping.
The latest LCA1 was released in October 2023. Most notably, the study showed that the corrugated industry has reduced greenhouse gas emissions by 50% since the industry first published a baseline LCA in 2006.
Today, more and more companies are required to report certain data about their environmental, social, and governance (ESG) performance. Companies that track environmental impact report three types of emissions: Scope 1, direct emissions from company facilities; Scope 2, electricity and energy emissions; and Scope 3, indirect emissions related to materials used, transportation, and other activities generated outside their own walls. Packaging falls into the Scope 3 area of interest.
The Corrugated Industry LCA can provide useful information for a company’s ESG data. The report now includes a tool to help companies quantify Scope 3 emissions related to packaging. The new tool identifies factors for industry average containerboard, industry average corrugated packaging products (such as cartons and displays), and 100% recycled containerboard and 100% recycled corrugated products. The data in the table allows product manufacturers to report indirect emissions from using corrugated packaging and containerboard in their operations.
Sometimes the initial solution is the right one. Today, corrugated packaging is as ideal as ever to help products move end-to-end through the supply chain. That’s because of its inherent characteristics based on engineering science, its truly, infinitely renewable raw materials, and decades of aggressive efforts to minimize environmental impact. As a result, even as supply chain operations have become more complex and demanding, the ubiquitous corrugated box has persisted.