The merger of Jefferson Smurfit and Kappa will create an entity that will be "well placed" as the European market leader in corrugated packaging and container board, Moody's, a ratings agency said yesterday.

Moody's has affirmed all its ratings on Smurfit's debt, signalling the agency's comfort with the terms of the deal.

Smurfit and Dutch firm Kappa announced on Tuesday that they wanted to come together in the biggest merger in Irish corporate history.

The combined entity - Smurfit Kappa - will have annual sales of more than €7.6 billion, and will be 58.3 per cent owned by Smurfit shareholders.

Moody's acknowledged that the merger would "pose significant challenges in terms of integration" but said the deal should boost Smurfit's ability to withstand the margin pressures currently affecting the market.

The enlarged company should be able to draw on "substantial synergies", the agency said.

It described the degree of leverage at Smurfit as "high" but said liquidity at the company was adequate to cover this.

About €1 billion is available to the firm through a combination of bank financing and internally-generated cashflows, according to the Moody's analysis.

The agency warned that the company's ratings could come under downward pressure if the paper and packaging market continues to suffer and if proposed synergies are not achieved.