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IP’s Massive Overhaul Means More Change for Paper Industry
International Paper announced on July 19 that it will undertake a
major restructuring effort in order to focus on two core businesses:
uncoated papers and industrial and consumer packaging. The move means
that IP will put millions of acres of its woodland holdings on the
block and sell (or spin off) its remaining businesses, which include
its wood-products operations, its controlling stake in New
Zealand-based papermaker Carter Holt Harvey, its coated and
supercalendered paper units, its kraft paper operations, and its
beverage-packaging business.The company anticipates that the asset sale will put between $8 billion
and $10 billion in its coffers. Approximately half of the proceeds will
go to reduce IP’s debt load, and another 25 to 30 percent will be used
to “return value to shareholders,” according to the firm’s press
release. The remainder of the proceeds will be available to the firm to
invest in its uncoated business paper and cardboard businesses.Although Reuters and other news agencies predict that after IP’s sale
it will no longer be the world’s largest forest-products company, Wall
Street applauded the move. IP’s share price surged 13 percent after the
news to $34 per share. The rally came less than two weeks after share
prices hit a 52-week low of $29.76 on July 7, following a warning to
investors that the papermaker’s second-quarter results would not meet
analyst expectations. The low marked a 30 percent decline from the
year’s high of $42.59 per share, reached back in January.Even with the anticipated course correction, the firm has its work cut
out for it. Lingering investor concerns eliminated most of the
share-price gains within days of the divesture announcement. “Despite
the fact that this move will strengthen IP’s position in the uncoated
freesheet market, the segment will continue to be a challenging
business, even for IP,” explains Rodger Reis, a research analyst for
Lyra’s Hard Copy Supplies Advisory Service. “Wall Street is clearly
concerned by mature growth rates for uncoated freesheet products in
high-volume markets such as North America and Western Europe, which
demand high capital costs and provide slim profit margins.”
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