Analysts Say IP Not in Position to Buy Scandinavian Rival

International Paper Co. may be eyeing possible acquisitions, but a report on Wednesday that it is in merger talks with Finnish-Swedish firm Stora Enso is probably premature, sources close to the company said.

Swedish newspaper Dagens Industri said IP and Stora are in merger talks. Both have declined to confirm or deny the report.

Industry observers said that although a deal was logical from an industry point of view, it was too early for the company to launch such a large takeover.

Stamford, Conn.-based IP would have to pay a considerable premium over Stora’s market value of about $10 billion to acquire the company and that kind of deal may be out of its reach at a time when it is trying to sell some assets and clean up its balance sheet, industry analysts said.

IP, which has a market value of about $20 billion, had long-term debt of $12.6 billion at the end of 2000. Any deal would therefore probably involve the issuing of IP shares, which could hurt earnings per share growth, the analysts said.

“They have a lot of things on their plate, it’s very premature,” said one banker familiar with IP.

The deal, which would create the world’s largest paper and forest industry company with combined sales of $40 billion, also could face a difficult road in getting approval from antitrust regulators in both Europe and the U.S.

Competition concerns could be particularly acute in magazine paper, where Stora Enso was the world’s No. 2 producer in 2000, behind Finland’s UPM-Kymmene, with a market share of about 22% in Europe and 20% globally, while IP was the third-largest.

IP Chief Executive John Dillon and his Stora counterpart, Jukka Harmala, may have already held informal talks, the sources said. The two are said to be well-acquainted.

IP shares eased 30 cents to $40.49 on Wednesday on the New York Stock Exchange.