May 11, 2005. /Lesprom Network/. Jefferson Smurfit Group has confirmed it is has started talks with its Dutch rival Kappa that "may or may not lead to a transaction", according to Irish Times. Kappa, which is valued at around Euro 4.5 billion was effectively put on the market last October by Cinven and CVC, the two UK private equity firms which bought it in 1998. Goldman Sachs was appointed to review strategic options, but the expectation was that a sale was the most likely outcome. A spokesman for Smurfit confirmed the talks yesterday, but refused to give any details. Smurfit was taken private in 2002 by US private equity firm Madison Dearborn for Euro 3.9 billion in 2002. It is thought unlikely that Madison Dearborn would be seeking an exit at this stage. A flotation of Jefferson Smurfit sometime this year was mooted, but was ruled out for the immediate future by Gary McGann, the Smurfit chief executive, in February. Mr McGann cited the sluggish performance of the main European markets as the primary obstacle. Smurfit remains highly leveraged, despite a refinancing in January, as a result of the 2002 deal. It had debts of just under Euro 3 billion at year end, but that was prior to the Euro 450 million sale of its Munksjo speciality paper company in March. Analysts believe that Smurfit could support debts of Euro 3.4 billion and that any takeover of Kappa would be highly leveraged and might involve some form of fundraising or coinvestment with its parent Madison Dearborn. Smurfit has an history of ambitious deals, buying the French group Cellulose Du Pin in 1994 for £684 million in a move that doubled the size of the business. Madison Dearborn, which owns 90% of Smurfit, has been an active acquirer of print and packaging assets in recent years spending around $15.5 million acquiring business including Smurfit, Packaging Corporation of America, Graphic Packaging Corp and Bay State Paper. Last year it bought the paper, forest product and timberland assets operation of Boise Cascade for $3.7 million. It subsequently sold before selling on the timberland assets for $1.65 million and floating the the paper and forest products in a Euro 575 million initial public offering. Smurfit reported losses of Euro 35.5 million last year, down from Euro 67.3 million last year, but reported an increase in free cash flow as a result of aggressive cost cutting. Operating profits were Euro 606 million on sales of Euro 4.8 billion. It has around 30,000 employees and operates 300 plants in 20 counties, mostly in Europe and Latin America. Kappa has sales of around Euro 3 billion and made an operating profits of Euro 206 million in 2003, but reported a net loss of just under Euro 30 million. It employs around 16,000 people at 115 sites across 18 European countries. Dr Michael Smurfit, the chairman of the company retains a 7.7% stake, while Mr McGann and other management own another 2.3%.