Smurfit Kappa has defied a renewed sell-off of stock on global markets to deliver an 89 cent rise in its share price after the start of conditional trading in advance of its flotation next Tuesday.
The increase in the group's stock to €17.39 from €16.50 in the grey market was not reflected on the Iseq index, which fell by more than 4 per cent yesterday.
The €1.3 billion proceeds of the flotation will be used to pay down debt at the packaging group, whose private equity investors, Madison Dearborn, CVC and Cinven, will not be able to sell down their stake until the expiry of a lock-in 180 days after the initial public offering (IPO).
Smurfit Kappa's outgoing chairman Dr Michael Smurfit, who had a 4.9 per cent stake in the business before the flotation, will be succeeded by Seán FitzPatrick of Anglo Irish Bank.
Dr Smurfit's separation agreement with the group is valued at €9.01 million. This includes payment of €2.75 million, the equivalent of his annual benefit package.
He also receives €6.26 million, derived by multiplying the 831 days from the first anniversary of the flotation until June 30th, 2010, by €2.75 million and dividing that sum by 365.
The flotation prospectus indicates that Mr FitzPatrick will pay €99,990 for 6,060 shares in the IPO. CRH chief executive Liam O'Mahony, who joins the Smurfit Kappa board as non-executive director, invested a similar amount. While non-executive directors receive a basic fee of €50,000 per annum, the details of Mr FitzPatrick's package as non-executive chairman are not set out in the prospectus.
The document shows that group chief executive Gary McGann is investing €1.2 million on the purchase of 72,727 shares in (IPO). Already the holder of 0.12 per cent stake in the group prior to the flotation, Mr McGann receives a salary of €1.2 million.
Like the group's other executive directors, he can earn a bonus of up to 100 per cent of his salary for "superior performance and achievements".
Chief operations officer Tony Smurfit, a son of Michael Smurfit, is investing €849,994 in 51,515 shares in the IPO. He held a 0.32 per cent stake in the business before the flotation and receives a salary of €848,162.
Chief financial officer Ian Curley is investing €699,996 in 42,424 shares. He held a 0.12 stake in the group prior to the IPO and has a salary of €710,940.
Collins Stewart analyst Neil Darke said in a note that the offering "looks cheap" on conventional multiples on the basis of the IPO market capitalisation of €3.4 billion. "There are other more geared ways to play the paper sector (M-Real) but Smurfit Kappa offers an attractively-valued, high-return route to gain sector exposure."
NCB analyst John Sheehan said further pricing gain was likely and said upward revision to the group's synergy targets was likely in the near term.
"Threats come as ever from new industry capacity, though there is nothing envisaged before 2009 in Europe, when two large mills are set to commission."
The total number of ordinary shares in issue at the flotation is 205.62 million. At yesterday's closing price, the group had a market capitalisation of €3.52 billion.
Smurfit will use the proceeds to buy back some of its high-yield notes. It will pay €50 million in penalties for the early redemption of bonds and pay IPO expenses of €53 million.
Deutsche Bank is global co-ordinator of the IPO and Citigroup, Davy, Deutsche and Goldman Sachs are bookrunners. Davy and Deutsche are sponsors.
Smurfit Kappa's primary listing will be on the Dublin market and it will maintain a secondary listing in London.
