TIN Shareholders Nod to IP Merger - Analyst Blog
08 Dezembro 2011 - 1:15PM
Zacks
The International
Paper (IP) - Temple-Inland (TIN) merger
has been approved by more than 98% of Temple’s shareholders. This
clears a major hurdle in the creation of a company that would enjoy
about 40% share of the North American corrugated packaging
materials market. There is only one remaining hurdle – the receipt
of the important regulatory approval.
The chase for Temple-Inland had
begun in June with International Paper making a $3.3 billion or
$30.60 per share offer, all in cash, to buy Temple-Inland Inc.
However, Temple-Inland rejected the offer stating it grossly
undervalued its business and was, therefore, not in the best
interest of its shareholders. Finally, in September, International
Paper inked a deal to acquire Temple-Inland for $32.00 per share in
cash. The deal also included assumption of $600 million in
Temple-Inland's debt, taking the deal value to $4.3 billion.
In November, International Paper
priced a sale of $1.5 billion in debt to fund the acquisition. The
proceeds along with other debt financing and cash will be used to
fund the purchase. The company ended the third quarter with cash
and cash equivalents of $2.72 billion and a debt-to-capitalization
ratio of 53.3%.
The takeover is International
Paper’s largest since its August 2008 acquisition of
Weyerhaeuser Co.’s (WY) corrugated-packaging
business for $6 billion. International Paper is seeing a rebound in
demand and prices of its corrugated packaging and office paper
business in North America after suffering a collapse during the
financial crisis.
The acquisition of Temple-Inland
will further strengthen its foothold in the North American
containerboard market. The deal will also enhance the business
through integration, rationalization and optimization. The
combination would increase International Paper’s share of the North
American corrugated-packaging market to about 40% from roughly 27%
at present. It would also enable the company to implement cost cuts
at its corrugated-packaging business and increase the overall
bottom line in the very first year. The acquisition is also
expected to yield synergies of $300 million annually within two
years of closing, derived largely from operations, freight,
logistics, selling expense and overheads.
The company continues with its
merger and acquisition strategy to strengthen its business over the
long term. Recently, in a strategic bid to tap India’s growing
paper and packaging market, the company completed the acquisition
of a majority stake in leading Indian paper company Andhra Pradesh
Paper Mills Limited.
We expect International Paper to
continue utilizing its sound cash flow by investing in capital
projects, indulging in acquisitions and reducing its total debt.
However, its high debt levels and underfunded pension liability
remain concerns as it curbs the company’s ability to ramp up its
capital expenditure. Further, margins remain under pressure due to
input cost inflation.
We retain a Neutral recommendation
on International Paper. The quantitative Zacks #3 Rank (short-term
Strong Hold rating) for the company indicates no clear directional
pressure on the stock over the near term.
Memphis, Tennessee-based
International Paper 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 competes with the likes of
MeadWestvaco Corporation (MWV)
and Weyerhaeuser Co. (WY).
Austin, Texas-based Temple-Inland
is a manufacturing company focused on corrugated packaging and
building products. The fully integrated corrugated packaging
operation consists of 7 mills and 57 converting facilities. The
building products operation manufactures a diverse line of building
products for new home construction, commercial and repair and
remodeling markets.
INTL PAPER (IP): Free Stock Analysis Report
MEADWESTVACO CP (MWV): Free Stock Analysis Report
TEMPLE-INLAND (TIN): Free Stock Analysis Report
WEYERHAEUSER CO (WY): Free Stock Analysis Report
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