Dr Michael Smurfit and his family are expected to join the leveraged buy-out of Jefferson Smurfit Group being mounted by Madison Dearborn, the Chicago-based private equity firm. However, Dr Smurfit, along with his son Tony and two brothers Alan and Dermot will become involved in their capacity as members of the company management rather than major shareholders.
The other senior executives of the company, including chief executive officer designate, Mr Gary McGann, will also participate in the buy-out.
The Smurfit board will meet this week - possibly tomorrow - and is expected to appoint a sub-committee of independent directors to consider the approach from Madison Dearborn and make a recommendation to shareholders. Dr Smurfit and the other executive directors that back the deal cannot participate in the evaluation because they would be considered to have a conflict of interest. The evaluation process could take up to four weeks.
Mr Howard Kilroy, a former chief operations officer of Smurfit and Governor of the Bank of Ireland, is seen as a potential chairman of the sub-committee. Mr Ray MacSharry, former European Commissioner, is also on the board and has experience of the LBO process having presided over the break-up of Eircom.
The independent directors will evaluate the bid and then decide whether or not to recommend it to shareholders. Madison Dearborn has already made clear it is interested only in a friendly deal that has the Smurfit board's support.
The US group's chances of winning the board support will be greatly enhanced by having the senior management, including the Smurfits, involved in the deal. Dr Smurfit's brothers - Dermot and Alan - are both deputy chairmen of the company while his son, Tony, is the chief operating officer.
The Smurfit family control some 10 per cent of the firm and could get a payout of around €300 million if the company is taken out at the current shareprice. But they are expected to re-invest some of this money as part of the equity under lying the leveraged buy-out.
Smurfit shares have jumped almost 20 per cent since news broke of the Madison Dearborn approach. The shares closed at €3.21 in Dublin on Friday and market commentators have predicted they could be bid up as high as €3.70 if a rival offer emerges. This would value the company at around €3.7 billion.
But the decision of the Smurfit management to support the approach from Madison Dearborn greatly reduces the prospect of a rival bid emerging. It is thought more likely that the firm will invite other leveraged buy-out houses to come in on the deal which will be financed by debt.
Among the issues independent directors will have to address is the proposal to distribute the group's 29.5 per cent stake in Smurfit Stone to shareholders as part of the buy-out. Smurfit Stone was formed out of the merger of most of Smurfit's US interests with Stone Container and Smurfit's stake is worth around €1.3 billion.
The proposal may prove unpopular with institution shareholders as they will be left holding small stakes in the US corporation. It is attractive to Madison Dearborn because it reduces the overall size of the deal. The independent directors will have to determine whether this is in the best interest of the 16,500 Smurfit shareholders.
