DS Smith agrees $7.2 bln all-share deal with International Paper

International Paper tables formal offer

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Rival suitor Mondi declines to comment

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Shares in DS Smith down 2%

April 16 (Reuters) - International Paper on Tuesday agreed to an all-share deal to buy DS Smith, valuing the British packaging firm at 5.8 billion pounds ($7.2 billion) and edging out a bid by Mondi.

DS Smith said it had recently received proposals from both International Paper and Mondi, but the U.S. company was now in a position to make a firm offer.

The two suitors earlier had an April 23 deadline to make a firm offer or walk away. Mondi declined to comment on the deal.

Shares in DS Smith, which have gained about 46% since Mondi first made its interest known in

early February

, fell as much as 4%, before paring losses to be down 2% by 0734 GMT.

DS Smith said on Tuesday revenue in the year to date has declined, mainly due to lower volumes and a fall in packaging and paper prices.

U.S. firm International Paper entered the fray late last month with a higher counter-bid as it sought to expand its European presence at a time of consolidation in the sector.

Late last year, Ireland's Smurfit Kappa agreed to buy U.S. rival WestRock in an $11 billion deal which is expected to close in July.

Upon completion of the combination, DS Smith shareholders would own about 33.7% and International Paper shareholders will own the rest of the combined company, which plans to seek a secondary listing in London.

DS Smith said it would recommend shareholders back the deal with International Paper. Any deal would be subject to a shareholder vote and regulatory approval.

UK firm Mondi last month reached an agreement in principle to buy DS Smith for 5.14 billion pounds in an all-stock deal. Its purchase price had represented a 33% premium at that time, with DS Smith shareholders getting control of 46% of the enlarged group.

International Paper said about 400 roles across the combined company may be at risk, but added any lay-offs would be subject to review.

"Combining with DS Smith is a logical next step in International Paper's strategy to drive profitable growth by strengthening our global packaging business," said Mark S. Sutton, chairman and CEO of International Paper.

Goldman Sachs, Citi and J.P. Morgan advised DS Smith. BofA Securities acted as sole financial adviser to International Paper.

The deal is expected to close in the fourth quarter of this year.