International Paper Co. (IP) has made a $3.3 billion or $30.60 per share in cash offer for its competitor Austin, Texas-based Temple-Inland Inc. (TIN) in an effort to further strengthen its foothold in the North American containerboard market.
International Paper’s offer price of $30.60 is 44% more than Temple-Inland’s share price of $21.21 at June 6, 2011, noon. International Paper had first communicated its proposal on May 17, 2011. Subsequently, there has been meeting and correspondence between the two sides.
On June 4, 2011, International Paper was informed in a letter from Temple-Inland's chairman stating that its Board has unanimously rejected International Paper's proposal. Temple-Inland said the offer grossly undervalues its business and is not in the best interest of its shareholders.
According to Temple-Inland’s Board, the company has consistently delivered superior results for its stockholders compared with its corrugated packaging peers (including International Paper), building products peers, and the S&P 500.
Temple-Inland’s total returns to stockholders of 22% greatly exceeded International Paper’s 5% total return. Through its proven ability to execute its strategy focused on maximizing return on investment (ROI) and profitably growing our business, the Board believes Temple-Inland will continue to provide superior results for its stockholders. In response, International Paper has sent a letter to Temple-Inland expressing its continued interest in pursuing an acquisition.
The takeover would be International Paper’s largest since its August 2008 acquisition of Weyerhaeuser Co.’s (WY) corrugated-packaging business for $6 billion. International Paper is seeing demand and prices for its corrugated packaging and office paper in North America rebound after having collapsed during the financial crisis.
The deal will further improve the business through integration, rationalization and optimization. The combination would increase International Paper’s share of the North American corrugated-packaging market to about 37% from about 27%. It would also enable cost cuts in International Paper’s corrugated-packaging business and increase the company’s earnings in the first year.
We expect International Paper to continue utilizing its sound cash flow by investing in capital projects, indulging in acquisitions and reducing its total debt. We await further developments on this event. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).
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 businesses through five segments: Printing Papers, Industrial Packaging, Consumer Packaging, Distribution (Xpedx) and Forest Products. International Paper also competes with MeadWestvaco Corporation (MWV) and Weyerhaeuser.
INTL PAPER (IP): Free Stock Analysis Report
MEADWESTVACO CP (MWV): Free Stock Analysis Report
TEMPLE-INLAND (TIN): Free Stock Analysis Report
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