IP Takes Another Go at TIN

International Paper Co. (IP - Analyst Report) has taken its $3.3 billion or $30.60 per share cash tender offer of all outstanding shares of its competitor Temple-Inland Inc. (TIN) to the latter’s shareholders. The proposal will expire on August 9, 2011.

Temple-Inland's board of directors will review the offer to determine the course of action that it believes is in the best interest of the company and its stockholders. The company’s shareholders have been advised to refrain from any action at this time pending conclusion of the review of the tender offer by Temple-Inland's board.

International Paper’s offer price of $30.60 is 46% more than Temple-Inland’s share price of $21.01 at noon June 6, 2011. International Paper had initially communicated its proposal on May 17, 2011.

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.

The Temple-Inland board asserted that their company has consistently delivered superior results for its stockholders compared with corrugated packaging peers, (even including International Paper), building products peers, and the S&P 500.

Temple-Inland’s total returns to its stockholders of 22% far exceeded International Paper’s 5% return. Through its proven ability to maximize the return on investment (ROI) and profitably growing the business, the board seemed confident that Temple-Inland will continue to provide superior results for its stockholders. In response, International Paper had sent a letter to Temple-Inland expressing its continued interest in pursuing the acquisition.

To prevent the takeover, Temple-Inland adopted a stockholder rights plan and declared dividend distribution of preferred share purchase rights on each outstanding share of Temple-Inland common stock.

The takeover, on consummation, 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 a rebound in demand and prices of its corrugated packaging and office paper business in North America after  suffering a collapse 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 40% from roughly 27% at present. It would also enable the company to implement cost cuts at its corrugated-packaging business and increase the overall bottom line in the very first year.

We expect International Paper to continue utilizing its sound cash flow by investing in capital projects, indulging in acquisitions and reducing total debt. We nevertheless await further developments on the Temple-Inland event. The company currently retains a Zacks #4 Rank (short-term Sell 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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Read the full analyst report on TIN