Mondi expects the combined company resulting from the merger to benefit from increased vertical integration, resulting in a more balanced paper position, improved earnings resilience, and enhanced security of paper supply for shareholders and customers alike

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Mondi is exploring a potential merger with its rival DS Smith. (Credit: Mondi)

UK-based packaging and paper group Mondi has confirmed that it is in the early stages of contemplating a potential all-stock bid for rival British packaging company DS Smith.

The potential merger is expected to create a packaging giant reportedly worth more than £10bn.

DS Smith was the first to comment on media speculation regarding a potential merger with Mondi. The company stated that it had received a highly preliminary expression of interest from Mondi but did not disclose any financial details.

In a stock exchange filing, DS Smith stated: “The Board of DS Smith understands that Mondi is considering a possible offer for DS Smith although no proposal has been received at this stage.”

Mondi stated that it routinely explores various options within its disciplined capital allocation framework, aiming to accelerate growth in the packaging sectors it operates in.

It sees a potential all-share combination with DS Smith as an exciting opportunity to establish a leading European provider of sustainable paper-based packaging solutions.

Mondi believes that the merged entity will be well-positioned to capitalise on the growing demand for sustainable packaging.

Additionally, Mondi expects the combined company to benefit from increased vertical integration, resulting in a more balanced paper position, enhanced earnings resilience, and improved security of paper supply for shareholders and customers alike.

Furthermore, Mondi anticipates significant synergies from vertical integration, high complementary positions in containerboard, corrugated solutions, and flexible packaging, as well as economies of scale and efficiencies across the supply chain and administration.

The company stated: “Mondi remains committed to maintaining a strong and stable financial position supported by a solid investment grade credit rating and a dividend policy aimed at offering shareholders long-term dividend growth within the context of its stated cover policy.

“There can be no certainty that an offer will be made to acquire DS Smith.”

DS Smith is a provider of sustainable packaging solutions, paper products and recycling services with operations in 30 countries. The company has a workforce of over 30,000 people.

Mondi on the other hand has 100 production sites with operations in 30 countries and a workforce of around 22,000.

Earlier this week, the company closed the $5m acquisition of Hinton Pulp mill in Alberta, Canada from West Fraser Timber.