International Paper Co., the world’s largest paper company, agreed to buy Weyerhaeuser Co.’s pulp business for about $2.2 billion to double its global position in the raw material used in diapers and other hygiene products.
Annual cost savings from the all-cash deal will be about $175 million by the end of 2018, Memphis, Tenn.-based International Paper said Monday in a statement. The company expects to realize a $300 million tax benefit from the transaction.
The transaction will make International Paper the leader in the global market for so-called fluff pulp, “well ahead” of Koch Industries Inc.’s Georgia-Pacific, Mark Wilde, an analyst at BMO Capital Markets in New York, said in a note. Use of fluff pulp, an absorbent material manufactured from softwood, is growing amid rising sales of adult-incontinence products. Expanding middle classes in developing nations are buying more tissue paper and other personal-care items.
The deal may draw some regulatory scrutiny, while “the bigger investor concern is apt to be the question of how the business will perform in the face of so much new fluff capacity hitting a growing, but relatively modest-sized market over the next three to four years,” said Wilde.
The Weyerhaeuser assets have a total annual production capacity of almost 1.9 million metric tons and employ about 1,900 workers in the United States, Canada and Poland. The transaction, which is expected to close in the fourth quarter, will give International Paper five mills and two converting factories that produce fluff pulp, softwood pulp and specialty pulp. The acquisition will more than double the company’s position in fluff pulp and related products, Chief Executive Officer Mark Sutton said on a conference call.
“The market is a good market,” Sutton said on the conference call. “It’s growing globally. It’s all about consumer products that make people’s lives better. The capacity that’s being added is targeted at different levels of products, and I think we’ll be able to operate very, very well within that environment.”
To close the acquisition, International Paper may be wiling to sell as many as two of the mills if required by regulators, Sutton said.
The deal is International Paper’s largest since its $4.27 billion acquisition of rival corrugated-packaging manufacturer Temple-Inland Inc. in 2011.
Federal Way-based Weyerhaeuser said in a separate statement that the sale completes the first phase of its review of its cellulose-fibers business. The company said it’s still reviewing the future of its liquid-packaging board facility and its newsprint and publishing-papers venture.
Weyerhaeuser expects to use some of the estimated $1.6 billion of after-tax proceeds from the pulp deal to repay term loans related to the company’s $2.5 billion share-buyback program.
Morgan Stanley was financial adviser to Weyerhaeuser on the transaction, and Cravath, Swaine & Moore LLP is representing the company.
Debevoise & Plimpton LLP gave legal advice to International Paper.
