International Paper to Buy Rival
International Paper Co., the world’s largest paper producer, said Tuesday that it is buying smaller rival Union Camp Corp. for $4.9 billion, joining the wave of U.S. paper producers desperately seeking to slash costs amid slumping prices and booming Asian imports.
Union Camp shareholders would get stock valued at $71 a share, or 45% more than Monday’s closing price. International Paper, with 1997 sales of $20.1 billion, would also assume $1.7 billion of Union Camp debt. Wayne, N.J.-based Union Camp had sales last year of $4.5 billion.
The purchase would lift International Paper’s share of the North American market for uncoated papers to more than 20% from 14% and let it cut costs, analysts said. Uncoated papers are used for copy paper, business forms, writing tablets and book publishing.
International Paper, which has eliminated thousands of jobs since July 1997, hopes the merger will lead to annual savings of $300 million through measures including job cuts and possibly plant closings. Specifics of the cutback plans were not disclosed.
Analysts said the Union Camp takeover, combined with last week’s purchase of Stone Container Corp. by Jefferson Smurfit Corp., will revive profits and spark more mergers in the industry.
The newly combined Smurfit-Stone Container Corp. said Tuesday that it expects to close mills that can make as much as 1.1 million tons of container board, or about 17% of its U.S. mill capacity. Container board is the thick brown paper used to make boxes.
Smurfit-Stone’s cutbacks and International Paper’s acquisition announcement helped propel paper and forestry stocks Tuesday. Shares of Champion International Corp. rose $3.88 to close at $43.19, Georgia-Pacific Corp. rose $5.69 to $59.63, and Boise Cascade Corp. was up $4.31 at $32.19, all on the New York Stock Exchange.
Union Camp climbed $16 to close at $64.94. International Paper stock fell $1.81 to close at $44 on concern the acquisition will hurt earnings per share for a few quarters, analysts said. Both also trade on the NYSE.
Purchase, N.Y.-based International Paper said it expects the Union Camp purchase to add to earnings in the first year. The deal is expected to close at the end of the first quarter of 1999.
International Paper has operations in 30 countries and employs more than 80,000 people. Union Camp employs nearly 18,000 people at operations in 40 countries.
Like many of its U.S. counterparts, International Paper has suffered from weak demand that has been exacerbated by Asia’s economic downturn since mid-1997. Through the first three quarters of this year, International Paper’s sales have slipped 3% to $14 billion, while Union Camp sales were up just 3% at $3.4 billion.
“The industry seems to be--aside from a little moment of coming up for air in the mid-1990s--in a state of constant recession,” said industry watcher Sheldon Grodsky, director of research at Grodsky Associates Inc., a South Orange, N.J.-based brokerage.
