(Alliance News) - International Paper Co on Thursday said a merger with DS Smith PLC could generate cost savings of more than GBP400 million should a deal proceed.

International Paper, the Tennessee-based pulp and paper supplier, reported "significant progress" has been made in reciprocal due diligence and that it is now provide more detail on the type and quantum of synergies it believes would arise from the combination.

International Paper said it expects a merger to generate "significant synergies and drive compelling value creation for DS Smith and International Paper shareholders."

It estimated pre-tax cash synergies on an annual run-rate basis by the end of the fourth year following completion of the deal of at least USD514 million, around GBP407 million.

Around 47% of these would come from operational synergies across the combined network of mills, box plants and global supply chain.

A further 23% would come from overhead synergies by reducing duplicative corporate and business overhead expenses; with another 23% from operational procurement synergies from increased scale of the combined group.

Around 5% would result from capex procurement synergies and 3% from revenue synergies.

International Paper estimated the total costs to achieve the synergies would be around USD370 million or GBP293 million).

It expects around 33% of the synergies would be achieved by the end of the first year following completion, with approximately 66% and 95% achieved by the end of the second and third years.

International Paper envisages that DS Smith's North American manufacturing locations and International Paper's European manufacturing locations would continue their respective operations.

International Power said any new International Paper shares issued to DS Smith shareholders will be authorised for primary listing on the New York Stock Exchange. It intends to seek a secondary listing of its shares on the London Stock Exchange.

International Paper Chair and Chief Executive Mark Sutton said: "Bringing International Paper together with DS Smith is a logical next step in International Paper's strategy to create value by strengthening our packaging businesses in North America and Europe. By combining the strengths of both companies, we believe we can enhance our offering of sustainable packaging solutions for customers in attractive and growing markets."

Shares in DS Smith rose 1.6% to 409.00 pence in London on Thursday.

Last week Tuesday, DS Smith confirmed that it was in takeover discussions with International Paper.

International Paper's proposal offered 0.128 of its own shares for every share in DS Smith, valuing the company's shares at around 415p each, based on International Paper's closing price the day before the offer.

The move by International Paper came after DS Smith agreed merger terms with Mondi PLC, which valued DS Smith shares at 373 pence each.

Earlier Thursday, DS Smith said that an extension had been agreed for its potential takeover by Mondi.

DS Smith said it had requested that the deadline be extended to April 23. The UK Panel on Takeovers and Mergers has consented to the extension.

Shares in Mondi were virtually flat at 1,374.00p each on early Thursday afternoon in London, while in Johannesburg, shares were up 2.2% to ZAR322.24 each.

By Jeremy Cutler, Alliance News reporter

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