International Paper Co.
) is selling its three containerboard mills for $470 million to
fulfill its agreement with the Department of Justice (DoJ) in
connection with its acquisition of Temple-Inland.
As per the mandates of the DoJ, International Paper was required
to divest 970,000 tons of containerboard capacity. International
Paper had agreed to divest Temple-Inland's mills in Ontario,
California and New Johnsonville, Tennessee, and its existing mill
in Hueneme, California. The New Johnsonville mill is being
sold to Hood Companies, Inc. while the other two mills are being
sold to New-Indy Containerboard LLC, a newly formed joint venture
of The Kraft Group, LLC and Schwarz Partners,
In February this year, after an eight-month chase, International
Paper completed the acquisition of Temple-Inland for nearly $4.5
million or $32.00 per share. The deal included an assumption of
$700 million of Temple-Inland
The integration is already on track. The company generated $10
million in synergies in the first partial quarter of ownership. The
transaction is expected to be accretive to earnings within 12
months of closing and incrementally beyond 2013. The company has
recently raised its synergy expectation from the Temple-Inland
acquisition to $400 million (from $300 million) over the first two
years. Moreover, the combination will fortify the company's
packaging business in North America by increasing its share in the
corrugated packaging market to 34% from the current 27%.
International Paper's acquisition of Texas-based Temple-Inland
is its largest since the August 2008 acquisition of
) corrugated-packaging business for $6 billion. Given the magnitude
of the Temple-Inland deal, integration risks continue to be a
challenge. In addition, International Paper's failure to realize
the projected synergies from the acquisition could negatively
impact the company's earnings. The divestiture of the three mills,
as directed by DoJ, takes away some of the benefits from the
We maintain our Neutral recommendation on International
The quantitative Zacks #3 Rank (short-term Hold rating) for the
company indicates no clear directional pressure on the shares over
the near term.
Based in Memphis, Tennessee, 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.
It competes with companies like
) and Weyerhaeuser Co.
INTL PAPER (IP): Free Stock Analysis Report
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