* Smurfit Kappa does not disclose terms of proposed offer
* Irish group says offer significantly undervalues business
* Smurfit Kappa shares up over 18 percent
* European paper packaging shares' performance tmsnrt.rs/2Ff9HIz (Adds International Paper's statement)
By Padraic Halpin and Harry Brumpton
DUBLIN/NEW YORK, March 6 (Reuters) - Smurfit Kappa Group Plc , Europe's largest paper packaging producer, said on Tuesday it had rejected a takeover offer from U.S. peer International Paper Co, which the suitor later revealed was worth 8 billion euros ($10 billion).
The acquisition would allow International Paper to significantly diversify its business beyond North America. The bid comes as growing consumer spending and the popularity of online shopping have boosted demand for packaging.
International Paper said it had offered 22 euros in cash and 0.3028 new International Paper share for each Smurfit share, a premium of 27.4 percent to where Dublin-based Smurfit ended trading on Monday.
Smurfit said the offer "fails entirely" to reflect its growth prospects and industry outlook. News of the bid sent Smurfit's shares surging more than 18 percent to 33.86 euros.
International Paper said it remained ready to engage with Smurfit's board and shareholders to discuss both the merits of its bid and the reasons why "it believes it provides the best near and long term value for Smurfit Kappa shareholders."
Smurfit, 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.
Liontrust Asset Management, the 32nd biggest investor in Smurfit Kappa according to Thomson Reuters data, said a higher bid would be required given Smurfit's attractiveness to U.S. players in a consolidating industry.
"The offer is not particularly generous and we'd expect IP to come back," Liontrust's Stephen Bailey said in an interview. "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 capitalisation 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.
Reporting by Padraic Halpin in Dublin and Harry Brumpton in New York Additional reporting by Tom Pfeiffer and Simon Jessop in London Editing by Mark Potter, Susan Fenton and Richard Chang