What to do with DS Smith shares

HarryIb

I have about £5k of DS Smith shares, and as you'll know, the company is going to be taken over by International Paper. DS Smith has sent me the following statement (in part):

under Rule 2.7 of the Takeover Code, confirming that they have reached agreement on the terms of a recommended all-share offer for DS Smith pursuant to which DS Smith shareholders would be entitled to receive 0.1285 new IP shares for each DS Smith share, resulting in DS Smith shareholders owning approximately 33.7 per cent of the combined group

Prior to this announcement the value of DS Smith shares was higher than what appears to be 'the offer'. Might they go higher again before finalisation of the take-over, due towards the end of the year? At the moment their value is increasing. Under the circumstances of a future takeover, is it still worth considering selling up if the price exceeds the offer value?

Current prices (1pm, 23/5/2024) DS Smith 378.00p. My holding is presently about £900 in profit.

(not asking for financial advice or predictions, just that I've never been in this situation before)

Thanks.
                                                    

eskbanker

HarryIb said:

Prior to this announcement the value of DS Smith shares was higher than what appears to be 'the offer'. Might they go higher again before finalisation of the take-over, due towards the end of the year? At the moment their value is increasing. Under the circumstances of a future takeover, is it still worth considering selling up if the price exceeds the offer value?

Current prices (1pm, 23/5/2024) DS Smith 378.00p. My holding is presently about £900 in profit.

(not asking for financial advice or predictions, just that I've never been in this situation before)

It does sound very much like you are asking for predictions!  Obviously nobody knows if they'll go higher or not, so the best bet, as with any other investment, is to consider it in the context of your objectives, i.e. why did you buy these shares, has that been achieved yet, and do you view the takeover as something that'll help or impede prospects?

HarryIb

I suppose what I'm really asking is - if they go higher, will that affect the offer price? Or more to the point, do variations in price prior to deal conclusion affect the offer price? This is pretty much a general question in connection with takeovers.

I bought the shares over a period of a few years as a regular investment; I liked the company. I've no particular objective in connection with these shares.

eskbanker

If the prevailing price exceeds the offer price then shareholders are less likely to accept the offer, so offers will sometimes be increased to reflect that risk.

wmb194

HarryIb said:

I suppose what I'm really asking is - if they go higher, will that affect the offer price? Or more to the point, do variations in price prior to deal conclusion affect the offer price? This is pretty much a general question in connection with takeovers.

I bought the shares over a period of a few years as a regular investment; I liked the company. I've no particular objective in connection with these shares.

The offer price is 0.1285 shares in International Paper. The value in sterling is going to fluctuate with IP's share price in New York, the GBP/USD exchange rate and the market's rating of the likelihood of the deal being finalised.

If I'm calculating this correctly, currently it's worth $42.84 * 0.1285 / 1.274 = 432p per share. The current SMDS share price is 376p so a 13% discount to the offer. It shows a little scepticism that the deal will be done but a 10%-ish isn't an unusual discount. 

So you could hold on and potentially make more. If the deal falls through the price may tank and you may lose a large proportion of your current gain.

HarryIb

wmb194 said:

If I'm calculating this correctly, currently it's worth $42.84 * 0.1285 / 1.274 = 432p per share. The current SMDS share price is 376p so a 13% discount to the offer. It shows a little scepticism that the deal will be done but a 10%-ish isn't an unusual discount. 

Interesting point about the scepticism. I haven't found anything in the financial press to suggest the deal might not go ahead, but who knows? I'm going to hang on to the shares.

It's a pity another British company is being swallowed up by a foreign rival, but as a shareholder I do stand to benefit, so I have mixed feelings about it.

wmb194

HarryIb said:

wmb194 said:

If I'm calculating this correctly, currently it's worth $42.84 * 0.1285 / 1.274 = 432p per share. The current SMDS share price is 376p so a 13% discount to the offer. It shows a little scepticism that the deal will be done but a 10%-ish isn't an unusual discount. 

Interesting point about the scepticism. I haven't found anything in the financial press to suggest the deal might not go ahead, but who knows? I'm going to hang on to the shares.

It's a pity another British company is being swallowed up by a foreign rival, but as a shareholder I do stand to benefit, so I have mixed feelings about it.

A Brazilian pulp paper firm named Suzano SA has entered the fray saying that it would like to buy IP but it would be conditional on IP cancelling its bid for DS Smith. If this fell through would Mondi bid again? My head's spinning.

"The deal would be conditioned on International Paper abandoning its recently announced agreement to acquire British packaging firm DS Smith (SMDS.L), opens new tab for $7.2 billion, sources said."

https://www.reuters.com/markets/deals/brazils-suzano-confirms-interest-international-paper-assets-2024-05-22/

HarryIb

wmb194 said:

HarryIb said:

wmb194 said:

If I'm calculating this correctly, currently it's worth $42.84 * 0.1285 / 1.274 = 432p per share. The current SMDS share price is 376p so a 13% discount to the offer. It shows a little scepticism that the deal will be done but a 10%-ish isn't an unusual discount. 

Interesting point about the scepticism. I haven't found anything in the financial press to suggest the deal might not go ahead, but who knows? I'm going to hang on to the shares.

It's a pity another British company is being swallowed up by a foreign rival, but as a shareholder I do stand to benefit, so I have mixed feelings about it.

A Brazilian pulp paper firm named Suzano SA has entered the fray saying that it would like to buy IP but it would be conditional on IP cancelling its bid for DS Smith. If this fell through would Mondi bid again? My head's spinning.

"The deal would be conditioned on International Paper abandoning its recently announced agreement to acquire British packaging firm DS Smith (SMDS.L), opens new tab for $7.2 billion, sources said."

https://www.reuters.com/markets/deals/brazils-suzano-confirms-interest-international-paper-assets-2024-05-22/

Thanks! I missed that. Well, what on earth to do now? I'm inclined to hold onto DS Smith. As you imply, Mondi could be interested again if DS Smith isn't taken over by IP.