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International Paper (IP - Analyst Report) inked a deal to acquire all of the outstanding common stock of Temple-Inland for $32.00 per share in cash. The company will also assume $600 million in Temple-Inland's debt. The total purchase consideration is valued at $4.3 billion. The acquisition is expected to close in the first quarter of 2012 with earnings accretive to International Paper after one year of closing.

Earlier, in June, International Paper made a $3.3 billion or $30.60 per share in cash offer to buy Austin, Texas-based Temple-Inland Inc. However, Temple-Inland rejected the offer stating it grossly undervalued its business and was therefore, not in the best interest of its shareholders.

The takeover is 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 acquisition of Temple-Inland will further strengthen its foothold in the North American containerboard market. The deal will also enhance 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.

The acquisition is also expected to yield synergies of $300 million annually within 2 years of closing, derived largely from operations, freight, logistics, selling expense and overheads.

The Zacks Consensus Estimate for third-quarter 2011 is 80 cents per share. For full years 2011 and 2012, the Zacks Consensus Estimates are respectively, earnings of $3.00 and $3.21 per share.

We retain a Neutral recommendation on International Paper. The quantitative Zacks #3 Rank (short-term Strong Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Memphis, Tennessee-based International Paper 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.

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