MEMPHIS, Tenn. — International Paper, a global supplier of packaging materials and uncoated paper, announced Monday it is buying the containerboard unit of Weyerhaeuser Co. for $6 billion in cash.
Memphis-based International Paper said it will pay for the purchase through increased debt.
International Paper has greatly cut its debt and improved cash flow since launching a major reorganization in 2005 to move away from forest products and focus on producing uncoated paper and containerboard.
“This is just the exact reason we paid down $7 billion of debt a couple of years ago … to keep the financial flexibility so if something came along that was an opportunity for International Paper we could take advantage of it,” John Faraci, International Paper’s chairman and chief executive officer.
The increased debt led Moody’s Investors Service to revise its outlook on International Paper to “negative” from “stable.”
But International Paper said the purchase will increase its market presence the United States and Mexico for the company’s core products and boost profits over the long haul.
“It makes International Paper a lot stronger and better company,” Faraci said in a conference call with market analysts.
Once the sale is complete, International Paper will be the largest containerboard producer in North America, JPMorgan analyst Claudia Shank Hueston said in a research note Monday.
Because of the worsening credit crunch and a limited number of viable suitors, Hueston said the deal is “about as good as (Weyerhaeuser) could’ve gotten at this stage.”
Nevertheless, JPMorgan expects more volatility in Weyerhaeuser’s earnings because of growing vulnerability in the wood products and home-building markets.
Weyerhaeuser, based in Federal Way, south of Seattle, had been considering a sale of the division as it looked to focus on its timber, wood products and real estate operations.
The two companies have largely become mirror images of each other in recent years, with Weyerhaeuser shedding most of its paper production and International Paper selling off the vast majority of its timberlands, Paul Latta, an analyst with McAdams Wright Ragen, told the Associated Press.
“Strategically it seems to make sense for both companies,” Latta said.
Weyerhaeuser, one of the world’s largest lumber and packing producers, said it plans to use part the sale’s proceeds to pay down debt. The company had been considering a sale of the division as it looked to transition to more of a pure timber, wood products and real estate company.
The sale includes nine container board mills; 72 packaging locations, including sites at Bellevue, Moses Lake, Olympia and Yakima; 10 specialty-packaging plants; four kraft bag and sack locations; and 19 recycling plants, including one in Kent.
About 14,300 employees work at the containerboard packaging and recycling business.
Tim Nicholls, International Paper’s chief financial officer, said financing includes a term loan for about $2 billion to be repaid in five years.
“And then we’ve got a bridge that goes out to 18 months to put in permanent financing. … The costs, without going into numbers, is roughly equivalent of the debt that we retired through the buyback as we went through the transformation program,” Nicholls said.
Weyerhaeuser shares rose $1.09, or 1.8 percent, to close at $63.06 Monday, while International Paper shares fell $2.79, or 8.6 percent, to $29.47.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.
