UPDATE: DOJ Clears International Paper's Purchase Of Temple-Inland
02/10/2012| 04:09pm US/Eastern
--International Paper agrees to sell three containerboard mills
--The mills account for 970,000 tons of containerboard capacity
--Agreement with Justice Department will allow IP to close Temple Inland sale
(Updates with comments from conference call and more details throughout.)
By Bob Tita
International Paper Co. (>> International Paper Company) will sell three containerboard mills under an antitrust agreement with the U.S. Department of Justice that allows the company to complete the $3.4 billion purchase of rival Temple-Inland Inc. (>> Temple-Inland, Inc.).
The settlement agreement filed Friday in a federal court in Washington requires International Paper to sell Temple-Inland mills in New Johnsonville, Tenn., and Ontario, Calif., and an IP mill in Hueneme, Calif. The sale of the mills will trim 970,000 tons of containerboard production capacity, or about 7% of the total capacity of the combined companies. International Paper will have four to six months to sell the plants.
Containerboard is used to make corrugated cardboard boxes. The Justice Department demanded the sales to maintain a competitive market in a consolidating industry for corrugated packaging.
Austin, Texas-based Temple-Inland is the fourth-largest producer of industrial packaging in North America with a 10% share of the market. International Paper of Memphis, Tenn., is the market leader with a 27% share of the North American market. Following the sale of the three mills, International Paper's market share is projected at 34%.
International Paper said the agreement with the Justice Department will allow the purchase of Texas-based Temple Inland to close as soon as next week. International Paper will pay Temple shareholders $32 for each of their approximately 110 million shares of stock. The company values the total cost of the deal at $4.3 billion based on higher share count from exercised stock options and $600 million in assumed debt from Temple.
IP Chairman and Chief Executive John Faraci said he's satisfied with the Justice Department agreement, predicting that the devestitures will not disrupt the company's goal of reaching $300 million in cost-saving synergies from Temple over the next two years.
"With better U.S. economic data, improving box demand and export prices stabilizing, we think we're very well-positioned to get this off to a good fast start," said Faraci during a conference call Friday with analysts. Temple-Inland will "make International Paper's already-good industrial packaging business an excellent one."
The combined companies will have 17 mills. With Temple, IP expects to generate about $30 billion a year in sales with projected income before taxes and interest of about $4.3 billion.
International Paper does not expected to have difficulty selling the three mills. But if IP is unable find a buyer for its Huemene mill, it will attempt to sell its mill in Henderson, Ky.
The company also intends to sell Temple's construction materials business.
"With signs of improvement in housing market, that should positively impact the sale of the building products business," Faraci said.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; email@example.com
--Brent Kendall contributed to this report.