(Bloomberg) -- Packaging companies WestRock Co. and Smurfit Kappa Group Plc are in talks to merge, potentially creating an industry giant with a market value of about $20 billion.

The companies are discussing the key terms of a possible combination to create Smurfit WestRock, according to a statement. WestRock shareholders could receive shares of the combined entity should a merger proceed, the companies said. 

The deal would create a packaging behemoth that provides everything from corrugated storage boxes to beer carriers and e-commerce shipping materials. 

Forest industry companies have increasingly been turning to packaging from paper to benefit from the growth in online shopping while demand for paper has been in constant decline since the early 2000s. 

Following a couple years of growth in demand and profits, the highly cyclical industry is now in the throes of a downturn, as consumers paring back spending translates into lower demand for packaging. The industry has also been consolidating for years, as market players seek scale to cut costs and better serve large customers. 

Smurfit Kappa declined as much as 3.8% in early Dublin trading and was 1.8% lower at 9:10 a.m. 

Following the completion of the potential deal, ordinary shares of Smurfit WestRock would be listed on the New York Stock Exchange and on the standard listing segment of the London Stock Exchange, scrapping Smurfit Kappa’s premium listing there. Smurfit Kappa would also delist from Euronext Dublin.

Smurfit WestRock would be domiciled in Dublin, according to the statement, with a hub for Americas operations in Atlanta, Georgia.

Smurfit Kappa has long been seen as a potential player in the consolidation of the paper and packaging industry. In 2018, the firm rejected a takeover attempt by US rival International Paper Co. The Memphis, Tennessee-based company this week announced plans to look for a new chief executive officer.

Due diligence is ongoing and terms and conditions will be set out in a subsequent announcement, the companies said, after The Wall Street Journal reported on the merger talks. There’s still no certainty a transaction will happen, they added.

Shares of WestRock have fallen about 9% this year, giving the firm a market value at about $8 billion. Smurfit Kappa has risen around 6.6%, valuing it at approximately $10.3 billion.

Sustainability demands have also put pressure on companies to come up with lighter packaging and recycled products. As an underlying trend, paper-based packaging benefits from an increasing consumer preference for alternatives to plastic.

--With assistance from Kiel Porter.

(Adds context on packaging industry from third paragraph.)

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