DS Smith Soars on Merger Momentum

While the proposed merger with International Paper continues to be delayed, DS Smith has reported stellar results due to the surging demand for packaging products, which has maintained investor buying interest.

Follow the Merger Deal

DS Smith has surged by 20% over the past month, continuing an upward trend that has resulted in an over 80% increase throughout the year. However, these gains might be somewhat artificial. Since agreeing to be acquired by International Paper in April, DS Smith's share price has mirrored that of the more prominent American firm. Although IP does possess fundamentals to drive price increases, its share price is bolstered by the prospect of acquiring DS Smith and gaining access to the substantial European market, where IP has struggled to establish a significant presence in recent years.

The merger deal is an all-stock transaction, with DS Smith shareholders receiving 0.1285 IP shares for each DS Smith share. Since the deal was announced, IP's shares have risen by over 25%, further boosted by the recent appreciation of the US dollar. The bulk of the gains occurred last month when IP exceeded analysts' earnings expectations, reporting EPS of $0.44 against a forecast of $0.25. The company has confirmed that it is still progressing with acquiring the British firm, but the effective date has been postponed until next year. If current conditions persist, DS Smith's share price could continue to rise until shareholders exchange their holdings for shares in the US company.​

The Acquiring Company

The value for DS Smith shareholders (and anyone considering investing before the deal is finalised) will likely depend on the acquiring company's outlook over the next few months. The company has been implementing extensive cost-cutting measures, seemingly paying off with earnings exceeding forecasts. The CEO has also cited this as a reason for optimism about future performance. The combination with DS Smith would likely unlock synergies that could further aid these cost-reduction plans.

As for broader trends, the recent market optimism that has driven stocks to record highs might not be reflected in the wider economy. FedEx cut demand guidance when reporting earnings last month, which could indicate how packaging demand might evolve in the coming year. With this in mind, both the American and British packaging firms have emphasised cost and pricing as the major determinants of their evolution, arguing that demand will drive price increases and boost revenues in the coming year.​

DS Smith Forms Double-Top

DS Smith has maintained an upward trajectory after bottoming out at around 250 GBX in 2022. However, it recently encountered resistance at the 2018 peak of 590 GBX. A minor pullback could reignite the upward trend in the short term, potentially propelling the stock towards the 600 GBX handle, followed by the 650 GBX and 700 GBX round resistance levels. Conversely, a decline to the 500 GBX psychological support or towards 485 GBX could either form the handle of a potential cup-and-handle pattern or signal a reversal below 450 GBX, leading towards 400 GBX.​

Source: SpreadEx / Smith (DS)

Key Takeaways

DS Smith's share price has surged by 20% over the past month and 80% throughout the year, mirroring the gains of its potential acquirer, International Paper. The merger deal, an all-stock transaction, has been delayed until next year. DS Smith's performance is tied to IP's positive outlook due to cost-cutting measures and expected synergies from the merger, so both companies may continue to benefit. However, concerns remain about future packaging demand, as indicated by FedEx's guidance cut.