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International Paper Buys Weyerhaeuser UnitInternational Paper said on Monday that it had agreed to acquire Weyerhaeuser’s packaging business for $6 billion to become North America’s largest maker of corrugated boxes. The paper and packaging industry in North America and Europe has been consolidating and reducing production capacity in an effort to tackle soaring raw material costs and dwindling demand for paper. “This is an acquisition that is being made not for next quarter’s earnings, but to position International Paper for 2010,” said International Paper’s chief executive, John V. Faraci. Because the transaction is a purchase of assets rather than of stock, International Paper said the company would realize a tax benefit of about $1.4 billion, reducing the net purchase price to about $4.6 billion. In a note to clients, a JPMorgan analyst, Claudia Shank, cautioned that the company would be exposed to greater earnings volatility given its heightened exposure to wood products and home building. Shares of International Paper fell $2.79, or 8.7 percent, to $29.47 on the New York Stock Exchange, while those of Weyerhaeuser rose $1.09, to $63.06. International Paper said it had secured $6 billion in loans to finance the purchase, including an 18-month term loan for $4 billion. The cost to insure the debt of International Paper surged 30 percent after the deal was announced, according to Markit Intraday. International Paper’s credit default swaps weakened to around 295 basis points, or $295,000 a year for five years to insure $10 million in debt, from 227 basis points at Friday’s close. “Given the company’s historically aggressive nature, and with no clear path to balance sheet restoration yet illuminated, we are downgrading our credit score to ‘deteriorating,’ ” said a Gimme Credit analyst, Carol Levenson. International Paper said it expected the deal to bolster its 2009 earnings and it anticipated about $400 million in annual cost savings from the deal, with about 40 percent of those savings being realized within 12 months of closing the deal. The deal is expected to close in the third quarter. The acquisition includes 9 containerboard mills, 72 packaging locations and other operations and affects about 14,300 employees. Tag CloudExternal InformationAdditional InformationThe Money Issue: The Poverty Platform...Profit Up, Lazard Defies Investment Banking Trend... Cautious Vale admits to Xstrata talks... Oil and Gas Prices Hit Records... Where Am I?News Main Page - Business - International Paper Buys Weyerhaeuser Unit |
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