Updated from 7:48 a.m. EDT

International Paper

(IP) - Get Report

increased its bid, now valued at $9.5 billion in cash, stock and assumed debt, for rival paper manufacturer

Champion International

(CHA) - Get Report

on Wednesday, a bid that Champion has declared "superior" to

UPM-Kymmene's

(UPM)

earlier $9.1 billion proposed cash and debt acquisition of Champion, an increase of 3% over the bid agreed upon three months ago.

UPM-Kymmene responded by saying it will "consider" the new situation, noting that it has until Friday at 5:00 p.m. EDT to submit another proposal.

Shares of Champion were up 5 7/8, or 9%, to 72 3/16 in midday Wednesday trading. (Champion closed up 6 1/16, or 9%, at 72 3/8.)

The new offer from International Paper, the world's largest producer of paper, values Champion at $75 a share, $50 in cash and $25 in stock, a 13.1% premium to Champion's closing price Tuesday of 66 5/16. A merger with Champion would give International Paper a larger share of the growing market for magazine paper and a stronger foothold in the quickly consolidating paper industry.

International Paper unexpectedly

bid $6.2 billion in cash and stock for Champion at the end of April, in an attempt to thwart Champion's union with UPM-Kymmene of Finland. UPM-Kymmene's stock had fallen sharply since the deal was agreed upon in February, making it less enticing for Champion investors.

If Champion, based in Stamford, Conn., accepts the proposal, International Paper will make a $75-a-share cash tender offer for two-thirds of the outstanding Champion shares. Following a merger, each remaining Champion share will be converted into International Paper stock with a market value of $75.

However, if Champion shares are trading below $34.50 a share at the time of the merger, each remaining Champion share would be converted into 2.17391 International Paper shares.

International Paper expects a merger to result in $425 million in annual cost savings. The Purchase, N.Y.-based company also said that a merger should add to its earnings in the first full year after completion of the deal and over the life of the cycle.

Back in February, UPM-Kymmene, Europe's second-largest paper maker, said it would

exchange 1.99 of its ordinary shares for each outstanding share of Champion common stock. At the time, the exchange ratio represented a premium to Champion shareholders of about 30% over the average ratio of the two stocks during the past month. The deal then was valued at $8.7 billion in stock and debt, but is now valued at only $7.9 billion since UPM-Kymmene's stock has fallen and the euro has lost so much value against the dollar. The deal represented the industry's first substantial cross-Atlantic merger.

Shares of International Paper were down 1 1/8, or 3%, to 36 1/8 in midday Wednesday trading, while UPM-Kymmene's American depositary receipts were up 1, or 4%, to 29 3/8. (International Paper closed down 7/16, or 1%, at 36 13/16 while UPM closed up 1 7/8, or 7%, at 30 1/4.)