The Smurfit Group has acquired two corrugated box plants in Germany for £29.7 million. Mr Pat Barrett, chief executive of Smurfit Europe, said the acquisitions plug a significant strategic hole in Smurfit's European operations. The group has had a paper mill in Germany since 1989 but has been looking to acquire box manufacturing and distribution plants since 1993. The acquisition means the group now has manufacturing capacity in all the major countries of the European Union. Smurfit now has the most comprehensive coverage of box markets in Europe, according to Mr Barrett. "We have looked at over 18 possibilities in Germany. There are many entrepreneur-owner plants in Germany but the problem is finding an operation where the assets and the price match." The two plants acquired are profitable operations with the most modern production technology, he said. "The assets involved are of very high quality," Mr Barrett said.
The two operations will be earnings enhancing from the beginning and have a combined capacity of 90,000 tonnes. The price paid falls within the group price criteria of five times earnings before depreciation, interest and tax, he said.
Smurfit has acquired Wellit Wellpappenfabrik in Delbruck near Dortmund and Schneverdingen Wellpappenwerk which is located between Hamburg and Hannover. Recent investment programmes at the plants have increased combined capacity from 75,000 tonnes. The two operations will be consolidated with Smurfit's mill operation and will become significant purchasers of mill output. The companies currently buy only about 20,000 tonnes from the Smurfit mill. "In a cyclical business the integration of our German mill with downstream converting facilities is a big advantage", he said. The price includes Smurfit taking over "some minor debt". The acquisitions are "a bridgehead" for further expansion in the large German market and Smurfit will continue to "build on its position in Germany. The group wants to build its production capacity to over 250,000 tonnes over time, or 10 per cent share of the German market.
"We will spend about six months integrating the operations", Mr Barrett said, adding that the group will continue to look for suitable acquisitions at the right price in Germany. The acquired companies employ 250 people. Smurfit has no plans for redundancies. "The operations are efficient. We plan to expand them", he said.
With about 10.6 per cent of the 16 million tonnes European corrugated paper and box market, the outlook for the group's operations is closely tied to the performance of the European economies. "We are beginning to see a bit of an improvement in the European economies - the first blossoms are appearing. After a difficult time the economies in Germany and in France are starting to improve". Expressing disappointment at the French government's decisions to raise taxes on businesses in order to meet European Monetary Union entry criteria, Mr Barrett said the measures will not impact on Smurfit profits until 1988/1999.
