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Korsnäs and Billerud – a powerful packaging mix

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Korsnäs and Billerud – a powerful packaging mix

July 24, 2012 - 02:09

LONDON, UNITED KINGDOM, July 24, 2012 (RISI) -Creating a stronger player in the packaging industry to break into emerging markets is the main focus of the Korsnäs and Billerud merger. The deal last month which saw the merger of two Swedish virgin fiber packaging companies is a strong indicator of consolidation creating a powerful, innovative company with a well-established customer base.

The merger involves the holding company Kinnevik selling its Korsnäs packaging operations to slightly bigger rival Billerud for SEK 2.7 billion ($388 million) to form a combined group called BillerudKorsnäs with annual sales of approximately SEK 20 billion ($2.9 billion).

A leading position in renewable packaging

The deal will see Kinnevik being the biggest shareholder in the new company with 25%, as it will receive shares in Billerud in part payment for Korsnäs. Kinnevik chief executive and president Mia Brunell Livfors comments: "I am convinced that the merger between Korsnäs and Billerud is positive for both Korsnäs and Kinnevik's shareholders. Kinnevik will be the largest owner in the merged business, which will be a leading packaging company with strong market positions within its key product segments."

Per Lindberg, current chief executive of Billerud, will be chief executive of the newly merged company and president of the new company and Christer Simrén Korsnäs's current chief executive will be vice-president and chief operating officer.

Korsnäs president and chief executive Christer Simrén says on the merger: "Billerud and Korsnäs hold leading positions in renewable packaging materials niches that complement each other well.

"Together the companies will become a unique player with the ability to create innovative and leading packaging solutions for a growing and environmentally conscious global market."

There are clear indicators that the newly-merged companies will hit the ground running because of Lindberg's and Simrén's already strong relationship - having known each other for 25 years, along with a management team from both companies that are also acquainted with each other.

Both companies cite numerous benefits of the merger. The main one, according the companies is that the packaging market is exhibiting a positive long-term development, mainly due to increased globalization, increased prosperity and changing consumption patterns.

High hopes for customers

The management team has high hopes for the new BillerudKorsnäs, with the company forecasting its combined knowledge base will offer the best in product development for customers.

Even more exciting and promising is its plan for future international expansion. Long-term, the merger offers the perfect base for international expansion. Billerud chief executive and president Per Lindberg explained at the recent press conference: "We have an exposure to Europe of roughly 70% today. I think over time we shall decrease that and look at emerging markets: North Africa, Middle East and Asia. We believe that will give us profitable growth."

Lindberg feels this is dependent on how well the integration goes and cash flow, but it could happen in three to four years. "This gives us a bigger and stronger platform for international growth," he added. "We are not big enough separately to take a step outside geographically, but the new combined company will have the resources to do so."

Lindberg continues: "Together with Korsnäs, we are looking forward to creating a leading player within packaging materials with a solid platform for future growth."

"It is a transaction with both industrial and a financial logic and the combined company will be very well positioned. Together we will be able to offer our customers a better and broader range of products. Korsnäs is the leader within its product area which complements the product areas of Billerud and jointly the BillerudKorsnäs offering of smarter packaging solutions will be strengthened."

According to both companies initially the focus will be on integrating the two businesses by realizing synergies whilst establishing word class efficiency. Billerud and Korsnäs estimate annual synergies to amount to SEK 300 million ($43 million) in total. According to both companies these will be achieved through the coordination of the sourcing of raw materials and other purchases and by optimizing development, production, logistics and sales.

The deal also comes after Billerud, earlier this year, said it was buying the packaging paper operations of Finnish Group UPM for Euro 130 million $157 million).