Temple-Inland Responds to IP Bid

To ward off International Paper Co’s (IP - Analyst Report) offer of $3.3 billion or $30.60 per share in cash made earlier this week, Temple-Inland Inc. (TIN) has adopted a stockholder rights plan and declared dividend distribution of preferred share purchase rights on each outstanding share of Temple-Inland common stock.

According to Temple-Inland, the rights will be exercisable only if a person or group acquires 10% or more of Temple-Inland's common stock. Each right will entitle stockholders to buy one-hundredth of a share of a new series of junior participating preferred stock at an exercise price of $120.

If a person or group acquires 10% or more of Temple-Inland's outstanding common stock, each right will entitle its holder to purchase, at the right's then-current exercise price, a number of Temple-Inland's common shares having a market value of twice such price.

In addition, if Temple-Inland is acquired in a merger or other business combination transaction after a person has acquired 10% or more of the company's outstanding common stock, each right will entitle its holder to purchase, at the right's then-current exercise price, a number of the acquiring company's common shares having a market value of twice such price. The acquiring person will not be entitled to exercise these rights.

The dividend distribution will be made on June 17, 2011, payable to stockholders of record as of the close of business on that date, and is not taxable to stockholders. The rights will expire on June 7, 2016.

International Paper’s current offer price of $30.60 is 46% more than Temple-Inland’s closing share price at June 6, 2011. International Paper had first communicated its proposal on May 17, 2011. Subsequently, there have been meetings and exchanges of correspondence between the two sides.

On June 4, 2011, International Paper was informed in a letter from Temple-Inland's chairman stating that its Board has unanimously rejected International Paper's proposal. Temple-Inland said the offer grossly undervalues its business and is not in the best interest of its shareholders.

According to Temple-Inland’s Board, the company has consistently delivered superior results for its stockholders compared with its corrugated packaging peers (including International Paper), building products peers, and the S&P 500. Temple-Inland’s total returns to stockholders of 22% greatly exceeded International Paper’s 5% total return.

Through its proven ability to execute its strategy focused on maximizing return on investment (ROI) and profitably growing the business, the Board believes Temple-Inland will continue to provide superior results for its stockholders. In response, International Paper has sent a letter to Temple-Inland expressing its continued interest in pursuing an acquisition.

The takeover would be International Paper’s largest since its August 2008 acquisition of Weyerhaeuser Co.’s (WY - Analyst Report) corrugated-packaging business for $6 billion. International Paper is seeing demand and prices for its corrugated packaging and office paper in North America rebound after having collapsed during the financial crisis.

The deal will further improve the business through integration, rationalization and optimization. The combination would increase International Paper’s share of the North American corrugated-packaging market to about 37% from about 27%. It would also enable cost cuts in International Paper’s corrugated-packaging business and increase the company’s earnings in the first year.

However, with the current development of events, International Paper will have to pay up more for the Temple-Inland takeover. We await further developments on this event. The company currently retains a Zacks #3 Rank (short-term Hold recommendation).

Memphis, Tennessee-based International Paper Company is a global paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia and North Africa. International Paper conducts its businesses through five segments: Printing Papers, Industrial Packaging, Consumer Packaging, Distribution (Xpedx) and Forest Products. International Paper also competes with MeadWestvaco Corporation (MWV - Analyst Report) and Weyerhaeuser.

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