March 27 (Reuters) - International Paper ( IP ) has

stirred up a potential bidding war over British paper packaging

firm DS Smith ( DITHF ), making a takeover offer that sent the

shares of the FTSE-100 target over a two-year high.

DS Smith ( DITHF ) said on Tuesday it was in discussions with

International Paper ( IP ) over an all-stock offer from the

U.S.-listed company, which valued it at 5.72 billion pounds

($7.22 billion), or 415 pence per share.

DS Smith ( DITHF ) shares gained as much as 7.9% to 338.1 pence in

early Wednesday trade, hitting their highest since January 2022.

The proposal comes less than three weeks after DS Smith ( DITHF )

reached an in-principle agreement with its UK-listed rival Mondi ( MNODF )

, which made an all-share takeover offer valuing DS

Smith ( DITHF ) at 5.14 billion pounds.

Under the terms of the U.S. group's proposal, DS Smith ( DITHF )

shareholders would receive 0.1285 shares in International Paper ( IP )

for each share they own in DS Smith ( DITHF ). That would will give them

33.8% of the combined company - a smaller slice of the emerging

entity than under Mondi's ( MNODF ) proposal, which would leave DS Smith ( DITHF )

shareholders with control of 46% of the enlarged group.

However, the offer's terms represent a higher value of 415

pence per DS Smith ( DITHF ) share based on International Paper's ( IP ) Monday

closing price of $40.85, the British company said.

International Paper ( IP ), which on Wednesday confirmed the talks,

has until April 23 to make a firm offer.

"The Board acknowledges the strategic merits and potential

for value creation through a combination with International

Paper ( IP ). Accordingly, the Board is progressing its discussions

with International Paper ( IP ) regarding the Proposal," DS Smith ( DITHF ) said.

It said it was continuing talks with Mondi ( MNODF ).

Mondi ( MNODF ) declined comment.

Late last year, rival paper and packaging company Smurfit

Kappa announced its acquisition of WestRock ( WRK ) in

an $11 billion deal, which is still pending closure.

International Paper's ( IP ) interest in DS Smith ( DITHF ) is unexpected

given the company's recent focus on its North American business,

Morningstar analyst Spencer Liberman said.

Shares of International Paper ( IP ) closed 6.5% lower at $38.2 on

Tuesday.

Deal talks between DS Smith ( DITHF ) and International Paper ( IP ) were

first reported by Sky News on Tuesday.

($1 = 0.7919 pounds)