UPM-Kymmene Buys Champion International

Finland's UPM-Kymmene (UPM Quote) announced on Thursday it had agreed to acquire Champion International (CHA Quote) in a deal that values Champion's equity at $6.5 billion.

Under the terms of the deal, UPM-Kymmene will exchange 1.99 of its ordinary shares for each outstanding share of Champion common stock. The transaction values Champion's total equity at approximately $6.5 billion, based on UPM-Kymmene's Feb. 16 closing price of 33.80 euros ($33.33). Champion's shareholders may elect to receive either UPM-Kymmene American depositary receipts or ordinary shares.

The exchange ratio of 1.99 represents a premium to Champion shareholders of about 30% over the average ratio of the two stocks during the past month. The transaction will be accounted for as a pooling of interests and is expected to be accretive to both companies' earnings in the first full year after closing.

This deal comes on the heels of another industry acquisition, albeit a smaller one, announced on Thursday. International Paper (IP Quote) said it would acquire Shorewood Packaging (SWD Quote) for about $600 million in cash.

Juha Niemela, president and chief executive officer of UPM-Kymmene, said the deal would allow the joint company to expand its global reach. UPM-Kymmene is a leader in Europe's forest industry, while Champion has a strong presence in North America and Brazil

"We expect this geographic diversification to fortify our strong position in the magazine and fine papers businesses and to moderate the traditional cyclicality in our earnings base," Niemela said.

The UPM-Kymmene/Champion deal represents the industry's first substantial cross-Atlantic merger. The combined company will be called Champion International and will be symbolized by UPM-Kymmene's logo, the griffin. The company headquarters will be located in Helsinki, Finland.

Shares of UPM-Kymmene fell 2 13/16, or 8%, to 30 5/16, while Champion was up 7/16, or 1%, to 56 1/16. (At the close Thursday, UPM was down 2 11/16, or 8.1%, at 30 7/16, while Champion was down 1/16, or 1.01%, at 55 9/16.)