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 user 2005-09-03 at 10:50:00 am Views: 69
  • #12485

    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.”