DS Smith buys Swedish firm in search of northern exposure

DS Smith today spent 1.6 billion (£1.3 billion) buying the packaging division of a Swedish tissue-maker in a deal which it claimed made it Europe's biggest recycling company.

The acquisition from SCA - whose packaging operations have about 12,000 employees and brought in sales of 2.5 billion in 2010 - will be paid for by a combination of debt and £466 million from a nine-for-eight rights issue priced at 95p per share.

DS Smith's chief executive Miles Roberts said he wanted to spread into northern Europe. His company collects old cardboard boxes from retailers and manufacturers, recycles them, and has them back in use with customers such as Mars, Kraft, Procter & Gamble and Reckitt Benckiser as little as a week later.

"We're big in the UK and France, but SCA is focused in countries such as Germany, Switzerland, the Netherlands and Nordics - where we have a very limited presence," Roberts said. "Our customers want us to expand and grow our model. That's what this deal does."

SCA's customers include Mars, Danone, Unilever, Mercedes, BMW and swathes of Germany's car and aeronautics industry.

The acquisition must be agreed at a shareholder meeting on 3 February but Standard Life, which owns nearly 15% of DS Smith, has already backed both the transaction and rights issue. "We've consulted extensively with many of our largest shareholders," Roberts said. DS Smith shares rose 5% or 10.2p today to 213.8p.

Advisers JPMorgan, HSBC and Royal Bank of Scotland Hoare Govett share 56 million for their work on the deal. Roberts said that was cheap and reflected the fight for business in the City. "The fees included underwriting the rights issue and M&A advice worked out at 3.5%, That's very competitive," he said.

It could be that it's the buyer of Hoare Govett that picks up its share of the fees, since RBS is at present running a sales process for the broker.