International Paper Co. (IP) concluded four months of wooing Tuesday when it announced it will acquire Temple-Inland Inc. for $32 per share plus assumption of Temple-Inland's $600 million debt--a deal that IP values at roughly $4.3 billion.
The merger agreement, expected to close in the first quarter of 2012, "brings together two strong North American corrugated packaging businesses to create an even stronger company," a press release from Memphis, Tenn.-based IP said. Temple-Inland gets more than four-fifths of its revenues and all of its profits from corrugated packaging; the rest comes from building products. IP figures the new combination will produce synergies in operations, freight logistics, selling expense, and overhead worth $300 million in the first two years after the firms come together.
IP first approached Temple-Inland in June but was rebuffed by the Austin, Texas-based company's board. So in July, IP commenced a tender offer in which it promised to pay $30.60 for each share of Temple-Inland stock, a 46% premium above where the company's shares were trading in June. On July 18, Temple-Inland's board rejected that offer, saying it undervalued the company. The new price of $32 represents a 5.6% increase in IP's payout offer.
On July 21, Temple-Inland reported net income climbed 12.8% in the second quarter from the year-earlier period to reach $88 million on a 4.1% rise in total revenues to $1.02 billion. But the picture by operatiing segment diverged sharply. Net income for the corrugated paper operations soared 52% to $96 million on a 7.5% rise in revenues to $845 million. Meanwhile, the building products segment swung to an $8 million loss from a $15 million profit as sales slid 10% to $171 million.
Tuesday's news release quoted IP chairman and CEO John Faraci as declaring "The strategic benefits of this combination are clear and we are pleased to be able to move forward on terms that are financially attractive for both sets of shareholders. Acquiring Temple-Inland enhances our ability to generate additional cash flow while maintaining our strong balance sheet."
The statement also quoted Temple-Inland chairman and Chief Executive Officer Doyle R. Simons as saying the transaction "creates value for both Temple-Inland and International Paper shareholders. The combined company will be positioned to be a leader in providing high quality products for its customers."