It comes at conclusion of a phase one investigation from the UK's Competition and Market Authority's into the sale of DS Smith's plastic division to Liqui-Box for a reported $585m
The agreement of the sale between DS Smith and Olympus Partners - which own Liqui-Box - occurred in March of this year (Credit: Pixabay)
The UK’s consumer watchdog has raised concerns over the proposed sale of DS Smith’s plastics division to Liqui-Box.
The department, which includes the Rapak and Worldwide Dispenser brands, had looked set to be sold for a reported $585m to Liqui-Box, which is owned by American investment firm Olympus Partners.
But the Competition and Markets Authority (CMA) announced today (19 July) that it had two key concerns following the first phase of its investigation into the deal.
It said Liqui-Box and DS Smith are two of the four main companies in UK that offer a specialist type of packaging called bag-in-box – a plastic bag that is inserted into cardboard boxes for transporting food and drink, or in serving boxed wine, for example.
CMA concerns over DS Smith sale to Liqui-Box
In a statement, the CMA said: “If the deal is allowed to go ahead as planned, the CMA is concerned it could create insufficient competition in the supply of these products, leading to their customers potentially having less choice and paying higher prices, especially as there are very few large suppliers in the UK.
“The CMA is also concerned that the reduction in competition could lead to lower quality products and/or a poorer service.”
It added that if the businesses are unable to address its concerns, the deal will be referred for an in-depth phase two investigation to be carried out by a group of independent CMA panel members.
A DS Smith spokeswoman said the company had “noted” the comments made by the CM.
She added: “The transaction is not conditional upon CMA approval and we continue to expect completion to occur during the second half of this calendar year.”
Why DS Smith has decided to sell its plastics division
Announced in March this year, DS Smith claimed its decision to sell its plastics division to Liqui-Box is part of its “continued progress” as in creating sustainable packaging.
The divisions part of the sale includes flexible plastics, such as its bag-in-box packaging; rigid plastic, used to make kegs for breweries; and plastic foam for products like seating components in cars.
It aims to reinvest the $585m earned through the sale and increase its focus on the production of high-quality cardboard packaging.
DS Smith also described the deal as “strategically attractive”, as it represents a good price for shareholders and accelerates its programme of deleveraging, alongside bringing an organic cash flow into the business.
The sale followed its acquisition of fellow cardboard packaging firm Europac for a reported £1.4bn ($1.8bn).
The group’s chief executive Miles Roberts said at the time: “I am delighted to confirm that we have reached an agreement for the sale of our plastics division.
“The transaction is attractive both financially and strategically for DS Smith as, together with the acquisition of Europac, we reinforce our position as a leader in sustainable packaging, with a clear focus on our fibre-based business [cardboard packaging].
“My colleagues in the plastics division have worked hard to build the business into the success that it is today, and that quality has been recognised by Olympus Partners.
“We are pleased with the performance of the business during the second half of the year.
“While macroeconomic conditions remain uncertain, we are confident of continued strong demand for our innovative and high-quality sustainable packaging and the resilience of our FMCG-focussed customer base.
“At the same time, the sale announced today will further strengthen our robust balance sheet and the board continues to view the prospects for the business with confidence.”
Also speaking in March, Liqui-Box CEO Ken Swanson said DS Smith’s plastics division would advance its strategic initiative to manufacture sustainable flexible and rigid packaging solutions.
“This business has a significant synergistic fit with Liqui-Box and a product portfolio and manufacturing footprint that are highly complementary,” he added.
“This combination will be transformational for both companies and an exciting growth story for our employees and customers.”
“We have always had a great deal of respect for the DS Smith team and are excited by the prospect of working together to create a strong management team and skilled workforce with a shared vision and purpose.”