DUBLIN (From news reports) -- Europe's largest paper packaging producer Smurfit Kappa has rejected a takeover approach from U.S.-based International Paper Co, saying the proposal "fails entirely" to reflect its growth prospects and industry outlook.

Smurfit Kappa said on Tuesday that under the proposal its shareholders would receive a combination of cash and a minority holding in the combined business, but advised shareholders to take no action.

The approach by International Paper, North America's largest corrugated box maker, significantly undervalued the Irish group's asset, franchise and replacement value and was significantly below the valuations set by recent industry transactions, Smurfit said.

Its rejection of the proposal sent its shares surging more than 18 percent to record highs, and boosted European packaging peers DS Smith, Mondi and BillerudKorsnas, whose share prices were all over 5 percent higher, while Stora Enso was up 2.2 percent.

Shares in paper and packaging companies have far outperformed the wider European market in recent years as growing consumer spending and the explosion of online retail spurred demand for packaging.

"The board of Smurfit Kappa has unanimously rejected this unsolicited and highly opportunistic proposal. It does not reflect the group's true intrinsic business worth or its prospects," Smurfit Kappa Chairman Liam O'Mahony said in a statement.

"The board believes that it is in the best interests of all stakeholders for the group to pursue its future as an independent company."

It did not disclose detailed terms of the offer and said it was responding without the consent of International Paper.

Smurfit Kappa, which operates in 35 countries in Europe and the Americas, recorded a slight rise in full-year earnings to 1.24 billion euros ($1.5 billion) last year after a strong fourth quarter. It said on Tuesday that the underlying positive trading conditions had continued into 2018.

In its full-year results, it announced an acceleration of its investment program that it said would improve its market position between 2018 and 2021.

Analysts at Jefferies said before the market opened that an offer above 33 euros per share would be a realistic point to start discussions with International Paper. Smurfit Kappa's shares had risen by 18.5 percent to 33.9 euros by 0835 GMT.

Liontrust Asset Management, the 32nd biggest investor in Smurfit Kappa according to Thomson Reuters data, said a higher bid than that would be required given Smurfit's attractiveness to an American player in an industry that is consolidating.

"The offer is not particularly generous and we'd expect IP to come back," Liontrust's Stephen Bailey told Reuters. "An offer in excess of 40 euros a share would be closer to fair value. You do expect to pay a big premium for it to be taken over as it's a decent business with no obvious problems."

Memphis-based International Paper, which generates around 75 percent of its sales in North America, had a market capitalization almost three times that of Smurfit Kappa at $24.1 billion before its offer was made public.

Goodbody Stockbrokers said the combination made strategic sense given complementary businesses in Latin America and the opportunity for International Paper to build on its small position in Europe where it has a 4 percent market share.

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