Leading global paper and forest products company International Paper Company (IP) completed the spinoff of its distribution solutions business, xpedx, and its subsequent merger with UWW Holdings, Inc., the parent company of Unisource Worldwide.
The combined unit now operates as Veritiv Corporation, which will begin regular trading today on New York Stock Exchange under the ticker ‘VRTV’.
The Merger
International Paper divested its underperforming distribution business, xpedx and merged it with UWW Holdings. The merger led to the formation of Veritiv, which will own and operate the combined distribution solutions businesses of xpedx and Unisource. Unisource is a distributor of printing paper and packaging equipment and also provides facility solutions and logistics.
Per the terms of the deal, Veritiv issued 16 million shares, with International Paper retaining 51% stake in the new company. UWW Holdings received 7.84 million unregistered shares of Veritiv common stock, which equates to roughly 49% stake in Veritiv.
Accordingly, shareholders of International Paper received 8.16 million shares of Veritiv on a pro-rata basis. (See: International Paper Sets Distribution Ratio for xpedx Spinoff)
The previously announced definitive distribution ratio of the shares increased to some extent, owing to certain repurchases by International Paper of its common stock after the record date. The company’s shareholders received 0.019118445 shares of Veritiv common stock for each share of International Paper common stock.
The receipt of Veritiv stock will be tax-free to International Paper’s shareholders for U.S. federal income-tax purposes, excluding the cash received in lieu of fractional shares of Veritiv common stock.
In addition, International Paper received a special payment of $400 million, subject to certain adjustments. The consideration was financed with new debt in Veritiv's capital structure.
Moving Forward
Memphis-based International Paper is the world's leading producer of containerboards used to make corrugated brown boxes for shipping most goods. Its performance in first-quarter 2014 was strained due to adverse weather conditions, which translated into lost revenues and high costs. But the company is expected to get back on the track once the U.S. economy recovers.
Over the past eight years, the company has gradually been discarding its non-core assets, transforming itself into an industrial packaging leader. The xpedx spin-off was part of its restructuring strategy to increase focus on its legacy business.
The formation of Veritiv is expected to create significant value for the company and generate approximately $150 – $225 million in annual net synergies. The new entity, as a provider of end-to-end print, packaging, facility and logistics solutions, has projected 2014 revenues in the range of $9 – $10 billion.
International Paper, as the major stakeholder in Veritiv, is expected to benefit from the company’s extensive geographic footprint, wide-ranging product portfolio and differentiated service platform.
International Paper currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the basic materials sector include Alderon Iron Ore Corp. (AXX), Hi-Crush Partners LP (HCLP) and Universal Stainless & Alloy Products Inc. (USAP), all of which sport a Zacks Rank #1 (Strong Buy).
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