In a strategic bid to tap India’s growing paper and packaging market, International Paper Co. (IP) has completed the acquisition of a majority stake in leading Indian paper company Andhra Pradesh Paper Mills Limited (APPM) for $388 million in cash.
Earlier, on October 8, 2011, International Paper had acquired 21.5% of Andhra Pradesh Paper Mills Limited in a public tender offer of shares for approximately $105 million in cash. With the current purchase of a 53.5% stake in APPM for about $226 million, International Paper’s stake now stands at 75%. International Paper also paid $57 million as a non-compete fee.
Andhra Pradesh Paper Mills Limited is one of the biggest integrated pulp and paper manufacturing companies in India, and caters to both domestic and foreign markets. Andhra Pradesh Paper Mills produces writing and printing and copier papers at its two mills with a combined annual capacity of about 250,000 metric tons.
This transaction will make International Paper the first global paper and packaging company to have a significant presence in India’s paper and packaging industries. The APPM acquisition will help International Paper capitalize on the burgeoning demand for paper and packaging products in India.
The company continues with its merger and acquisition strategy to strengthen its business for the long term. Recently, the company finalized a deal to acquire Texas-based Temple-Inland in order to serve the North American container board market. International Paper also expanded its Asian operation with the acquisition of Svenska Cellulosa Aktiebolaget Group’s (SCA) Asian packaging arm for $206 million.
International Paper also signed a deal with AGI World of Atlas Holdings to form AGI-Shorewood, which will make it a global leader in specialty packaging solutions. The consolidation of two leading businesses will cater to the needs of premier consumer product, media and entertainment and tobacco companies providing them with innovation, efficiency and outstanding services.
We expect International Paper to continue utilizing its sound cash flow by investing in capital projects, indulging in acquisitions and reducing its total debt. Its high debt levels and underfunded pension liability remain concerns as it curbs the company’s ability to ramp up its capital expenditure. We thus maintain our Neutral recommendation corresponding with the short-term Zacks #4 Rank (Sell).
Memphis, Tennessee-based International Paper Company is a global paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia and North Africa. International Paper conducts its business through five segments: Printing Papers, Industrial Packaging, Consumer Packaging, Distribution (Xpedx) and Forest Products. International Paper competes with MeadWestvaco Corporation (MWV) and Weyerhaeuser Co. (WY).
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