International Paper Makes Hostile Takeover Offer for Rival Temple-Inland

International Paper Co. (IP), the world’s largest pulp-and-paper maker, made a $3.31 billion hostile takeover bid for Temple-Inland Inc. (TIN) to increase its share of the North American market for containerboard used in shipping boxes.

International Paper offered $30.60 a share in cash and has committed finance from UBS AG, Memphis, Tennessee-based International Paper said yesterday in a statement. Temple-Inland, based in Austin, Texas, said in a statement it rejected the bid.

The offer is 46 percent more than Temple-Inland’s closing share price yesterday. Temple-Inland rose $8.78, or 42 percent, to $29.79 as of 7:18 p.m. after the close of regular New York Stock Exchange trading yesterday.

International Paper is seeing demand and prices for its corrugated packaging and office paper in North America rebound after they collapsed during the financial crisis. The takeover would be International Paper’s largest since its August 2008 acquisition of Weyerhaeuser Co.’s corrugated-packaging business for $6 billion.

“The deal will improve the business through integration, rationalization and optimization,” said Joshua Zaret, a New York-based analyst with Longbow Research who has a “buy” rating on both companies. International Paper has earned “the right to pursue this path because of their successful integration of Weyerhaeuser’s industrial-packaging business.”

Photographer: Courtesy of International Paper

Employees of International Paper Co. look over some rolls of paper in one of the companies facilities in this undated company photo. Close

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Photographer: Courtesy of International Paper

Employees of International Paper Co. look over some rolls of paper in one of the companies facilities in this undated company photo.

Market Share

Buying Temple-Inland would increase International Paper’s share of the North American corrugated-packaging market to about 37 percent from about 27 percent, International Paper Chief Executive Officer John Faraci said in an interview yesterday. It would also enable cost cuts in International Paper’s corrugated- packaging business and increase the company’s earnings in the first year, he said.

“I’m confident of our ability to address any regulatory concerns,” Faraci said. “We have a strong team with experience with these types of issues.”

International Paper said it first made a takeover proposal to Temple-Inland on May 17. Following a meeting and correspondence between the companies’ chairmen, Temple-Inland said in a June 4 letter its board unanimously rejected the offer, according to International Paper.

The offer values Temple-Island about 9.8 times its last 12 months’ earnings before interest, taxes, depreciation and amortization, according to Bloomberg data. That compares with the median 7.1 times for 87 deals in the forest-product industry in the past five years.

‘Bargain Price’

Temple-Inland shareholders have had a total return on their investment of 22 percent since January 2008 while International Paper has given a return of 5 percent, Temple-Inland CEO Doyle R. Simons said in his company’s statement.

“International Paper is attempting to take advantage of our stockholders by moving to grab the company at a bargain price at a time when there is little or no market value being ascribed to building products,” Simons said.

Temple-Inland’s building-materials business isn’t part of International Paper’s core business and it’s “premature” to say what will happen to the unit, Faraci said on a conference call.

Evercore Partners Inc., UBS and law firm Debevoise & Plimpton LLP are advising International Paper. Goldman Sachs Group Inc. and Wachtell, Lipton, Rosen & Katz are advising Temple-Inland.

International Paper has climbed 8.8 percent this year in New York trading, giving it a market capitalization of $13 billion. The shares climbed $1.15 to $30.80 as of 7:15 p.m. yesterday.

In January, Norcross, Georgia-based Rock-Tenn Co. agreed to buy Chicago-based Smurfit-Stone Container Corp. for $4.5 billion to become North America’s second-biggest containerboard producer, after International Paper.

The value of the offer for Temple-Inland was calculated using the 108.3 million shares that were outstanding on April 2, according to data compiled by Bloomberg.

To contact the reporter on this story: Simon Casey in New York at scasey4@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.

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