International Paper Restructures

International Paper (IP - Analyst Report) and Atlas Holdings have entered an agreement to consolidate their consumer packaging solutions businesses. As such, Shorewood Packaging of International Paper and AGI World of Atlas Holdings will combine to form AGI-Shorewood. The consolidation is subject to regulatory approval and other customary closing conditions. Mike Ukropina, the present president of Shorewood Packaging, will head AGI-Shorewood.

The consolidation of two leading businesses will offer consumers with more options and opportunities in the upcoming future. Also, AGI-Shorewood is expected to emerge as a new global leader in specialty packaging solutions catering to the needs of premier consumer product, media and entertainment and tobacco companies providing them with innovation, efficiency and outstanding service. Shorewood Packaging, acquired by International Paper in April 2000, is a part of the company’s Consumer Packaging Group.

Atlas Holdings will own the entire stake in AGI-Shorewood business in the U.S. while International Paper will have a 40% stake in AGI-Shorewood business outside of the U.S. The transactions are expected to close before the end of 2011.

Upon completion of the transaction, AGI-Shorewood will have 24 manufacturing facilities having operations in North America, Europe, Asia, Australia and Latin America. The new company will also create approximately 4000 jobs.

AGI-Shorewood will remain focused on its key consumer packaging, media and entertainment and tobacco packaging markets offering a comprehensive portfolio of products including beauty and personal care, cosmetics and fragrance, healthcare and pharmaceuticals, consumer electronics, golf, confectionary and specialty foods and tobacco and specialty gravure.

International Paper is also onto strategic acquisitions. Recently, the company offered to acquire all of the outstanding shares of its competitors Temple-Inland Inc. (TIN) for $3.3 billion or $30.60 per share in cash.

The company also remains focused on returning more value to its shareholders. In 2010 and early January 2011, International Paper had twice hiked its annual dividend, from $0.10 to $0.75. This is a positive for its shareholders, since the company had slashed its dividend by 90% to $0.10 in March 2009 in an effort to preserve cash due to the economic downturn. We expect International Paper to continue utilizing its sound cash flow by investing in capital projects, indulging in acquisitions and reducing total debt.

We retain our “Neutral” recommendation on International Paper. The quantitative Zacks #3 Rank (short term Neutral rating) for the compnay indicates no clear directional pressure on the stock over the near term.

Atlas Holdings operating in the U.S., Canada, and Europe is engaged in a broad spectrum of industries, including food and agriculture, building materials and wood products, pulp and paper, packaging, distribution, energy, capital equipment, and industrial business services.

Headquartered in Memphis, Tennessee, International Paper is a global paper and packaging company with operations in North America, Europe, Latin America, Russia, Asia, and North Africa.

Read the full analyst report on IP

Read the full analyst report on TIN