Packaging company WestRock's (WRK) shares soared by almost 7% in pre-market trading on Tuesday after a merger announcement with Dublin-based Smurfit Kappa to create the world's largest listed paper and packaging company by revenue.

The two companies' combined revenue in the last fiscal year was $34 billion, and adjusted core profit was $5.5 billion. The new company, Smurfit WestRock, will be worth about $20 billion when listed.

What Does The Deal Mean For WestRock Investors?

Common stockholders of WestRock will receive a share of the new company plus $5 in cash for each share they own, adding up to $43.5 per share based on yesterday's closing price of Smurfit Kappa ordinary shares. Smurfit Kappa investors will receive one share of the new company for each share they own.

It seems like a good deal, as it presents a 28% premium over WestRock's closing price yesterday and far exceeds the expected deal premium of 15% to 20%.

Previously, the expected premium had ranged from 15% to 20%. However, the deal offered a 28% premium to WestRock's closing price yesterday, leading to a jump in its stock price.

What Does It Mean For The Two Companies?

Smurfit Kappa will own about 50.4% of the new company's stock, and the remaining 49.6% will be owned by WestRock shareholders, 

Given the extensive synergies between the two companies, Smurfit Kappa expects the deal to increase profits in the high single-digit by over 20% by the end of its first year of operations. A new holding company will be created for Smurfit WestRock, which will be Dublin-based and listed on the New York Stock Exchange.

The deal is expected to close in the second quarter of 2024 after regulatory approvals.