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International Paper to Buy Weyerhaeuser's Pulp Business

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Paper and packaging firm International Paper Company (IP - Free Report) recently inked a definite agreement with Weyerhaeuser Co. (WY - Free Report) , one of the world's largest private owners of timberlands, to acquire the latter’s pulp business for $2.2 billion in cash. The transaction is subject to mandatory closing conditions and regulatory approvals and is expected to be completed by fourth-quarter 2016.

The acquired asset portfolio includes five pulp mills and two converting facilities that produce fluff pulp, softwood pulp, and specialty pulp for consumer goods such as, diapers, hygiene products, tissue, and textiles. With a combined capacity of nearly 1.9 million metric tons of pulp, the transaction is likely to strengthen International Paper’s position in the global fluff pulp market and augment its operating cash flow.

In addition, the company expects the acquisition to generate annual synergies of approximately $175 million by the end of 2018 along with a higher flexibility to manage a wide portfolio of products to meet customer needs through superior R&D capabilities and priceless patent portfolio.

Mergers and acquisitions remain a key strategy for International Paper to strengthen its long-term business proposition. In North America, the company envisions a large opportunity within its industrial packaging businesses, which continue to generate the best margins in the industry. The company is further taking additional initiatives to drive margin expansion across the business.

On the other hand, the divesture is a part of Weyerhaeuser’s strategy to streamline its operations and reduce exposure to the Cellulose Fibers business to focus more on timberlands and forest products. The company intends to utilize the sale proceeds to repay debt.

International Paper is also undergoing restructuring initiatives to transform itself into a core packaging company. A few days back, International Paper inked a definitive agreement to divest its corrugated packaging business in China and Southeast Asia. The assets will be sold to Xiamen Bridge Hexing Equity Investment Partnership Enterprise, which specializes in packaging and related industries, for approximately RMB 1 billion (approximately $150 million). The held-for-sale asset portfolio included 18 manufacturing plants with employee strength of roughly 3,000.

We remain impressed by the continued attempts of this Zacks Rank #2 (Buy) stock to fuel its growth momentum. A couple of better-ranked stocks in the industry include Clearwater Paper Corp. (CLW - Free Report) and PH Glatfelter Co. (GLT - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).

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