DS Smith (SMDS.L) confirmed on Tuesday it was in discussions with International Paper (IP.N) over an all-stock offer from the U.S.-listed company, which valued the British paper and packaging firm at 5.72 billion pounds ($7.22 billion).
Under the terms of the proposal, DS Smith shareholders would receive 0.1285 shares in International Paper for each share they own in DS Smith. If the proposed deal goes through, DS Smith shareholders will own about 33.8% of the combined company.
The proposal's terms represent a value of 415 pence per DS Smith share based on International Paper's closing price of $40.85 on Monday, the British company said.
International Paper's offer represents a premium of 48% to DS Smith's closing price on Feb. 7, the day before Mondi announced its preliminary bid.
Earlier this month, Mondi (MNDI.L) had reached an in-principle agreement for an all-share offer to buy DS Smith for 5.14 billion pounds. The terms of that deal represented an implied value of 373 pence per DS Smith share, with Mondi shareholders owning 54% of the enlarged Mondi group.
Mondi's offer was a 33% premium to DS Smith's last close on Feb. 7.
"The Board acknowledges the strategic merits and potential for value creation through a combination with International Paper. Accordingly, the Board is progressing its discussions with International Paper regarding the Proposal," DS Smith said.
Late last year, rival Smurfit Kappa (SKG.I) announced its acquisition of WestRock (WRK.N) in an $11 billion deal, which is still pending closure.
International Paper's interest in the acquisition is unexpected given the company's recent focus on its North American business, Morningstar analyst Spencer Liberman noted.
Mondi did not immediately respond to a Reuters request for a comment.
Shares of International Paper closed 6.5% lower at $38.2.
Deal talks between DS Smith and International Paper were first reported by Sky News on Tuesday.
($1 = 0.7919 pounds)
