Int'l Paper Fulfills DoJ Mandate

International Paper Co. (IP - Analyst Report) has completed the sale of its three containerboard mills for $470 million to fulfill its agreement with the Department of Justice (DoJ) in connection with its acquisition of Temple-Inland.

As per the mandates of the DoJ, International Paper was required to divest 970,000 tons of containerboard capacity. International Paper has finalized the sale of Temple-Inland's mills in Ontario, California and New Johnsonville, Tennessee, and its existing mill in Hueneme, California. The New Johnsonville mill is being sold to Hood Companies, Inc. while the other two mills are being sold to New-Indy Containerboard LLC, a newly formed joint venture of The Kraft Group, LLC and Schwarz Partners, LP.

In February this year, after an eight-month chase, International Paper completed the acquisition of Temple-Inland for nearly $4.5 million or $32.00 per share. The deal included an assumption of $700 million of Temple-Inland debt.

The integration is already on track. The company generated $10 million in synergies in the first partial quarter of ownership. The transaction is expected to be accretive to earnings within 12 months of closing and incrementally beyond 2013. The company has recently raised its synergy expectation from the Temple-Inland acquisition to $400 million (from $300 million) over the first two years. Moreover, the combination will fortify the company’s packaging business in North America by increasing its share in the corrugated packaging market to 34% from the current 27%.

International Paper’s acquisition of Texas-based Temple-Inland is its largest since the August 2008 acquisition of Weyerhaeuser Co.’s (WY - Analyst Report) corrugated-packaging business for $6 billion. Given the magnitude of the Temple-Inland deal, integration risks continue to be a challenge. In addition, International Paper’s failure to realize the projected synergies from the acquisition could negatively impact the company’s earnings. The divestiture of the three mills, as directed by DoJ, takes away some of the benefits from the merger.

We maintain our Neutral recommendation on International Paper. The stock currently retains a Zacks #4 Rank (short-term Sell recommendation).

Based in Memphis, Tennessee, 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. It competes with companies like MeadWestvaco Corporation (MWV - Analyst Report) and Weyerhaeuser Co.