International Paper Co. (IP) may cut its $3.31 billion takeover offer for Temple-Inland Inc. (TIN) after shares of rival packaging makers fell and the U.S. economic outlook weakened, Royal Bank of Canada and Deutsche Bank AG said.
Temple-Inland is trading at a 26 percent discount to International Paper’s $30.60-per-share cash bid. Rock-Tenn Co. (RKT), North America’s second-largest maker of corrugated containers, is down 29 percent since International Paper publically made its offer on June 6, while Packaging Corp. of America has declined 11 percent.
Share prices of Austin, Texas-based Temple-Inland and its U.S. peers fell along with the broader markets in early August and expectations for future profitability have decreased, said Paul Quinn, a Vancouver-based analyst at Royal Bank. The company dropped a further 14 percent yesterday after the trustee of a failed financial unit, Guaranty Financial Group Inc., sued to recover $1 billion.
“Market conditions have changed since the June 6 bid,” Quinn said yesterday in a note to clients. “So there may be scope for International Paper to revise its bid price.”
International Paper will ultimately pay $30 a share for Temple-Inland, Mark Wilde, a New York-based analyst at Deutsche Bank, said today in a note. Wilde reduced his estimate from $36, citing operating problems at a Temple-Inland paperboard mill in Louisiana, the lawsuit announced yesterday and a weak outlook for the U.S. economy.
Temple-Inland had no comment, said an external spokeswoman who declined to be identified citing company policy. Tom Ryan, an International Paper spokesman, declined comment today by e- mail.
Temple-Inland rose $1.42, or 6.7 percent, to $22.75 at 4:15 p.m. in New York Stock Exchange composite trading. International Paper, the world’s largest pulp and paper maker, advanced 99 cents, or 4 percent, to $25.58.
Temple-Inland has rejected International Paper’s offer, saying on July 18 it “grossly” undervalued the company. To fend off the bid, Temple-Inland has adopted a so-called poison pill takeover defense that limits any person or group from acquiring more than 10 percent of its stock.
Buying Temple-Inland would boost Memphis-based 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 June. The acquisition also would enable cost cuts at International Paper’s corrugated-packaging business and increase the company’s earnings in the first year, he said.
International Paper’s tender offer for Temple-Inland is scheduled to expire on Sept. 8.
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