Paper Giant Ponders Future

International Paper considers selling or spinning off some businesses.
Author:
Publish date:

Updated from 10:15 a.m. EDT

Paper and wood products behemoth

International Paper

(IP) - Get Report

is considering what could be a massive operational restructuring that may involve selling or spinning off some businesses and closing some of its operations.

The plan will include narrowing the company's units to two main businesses -- uncoated papers and industrial and consumer packaging.

"We already have a strong global position in uncoated paper and have a growing worldwide platform in packaging," Chairman and Chief Executive John Faraci said Tuesday in a press release. "Our portfolio changes will allow us to better focus management attention and financial resources on these key businesses, which represent over 70% of our sales, and can achieve both cost-of-capital returns and profitable growth."

To concentrate on those operations, International Paper will evaluate its options for other divisions, including the potential sale or spinoff of its 50.5% stake in Carter Holt Harvey, as previously announced; the coated and supercalendared papers business, including the coated groundwood mill and associated assets in Parana, Brazil; the beverage packaging business, including the Pine Bluff, Ark., mill; the Kraft Papers business, including the Roanoke Rapids, N.C., mill; Arizona Chemical; segments or potentially all of its 6.8 million acres of U.S. forestlands; and the wood products business.

These divisions represent about 30% of the company's 2004 sales, including intercompany sales, and $925 million, or 40%, of operating profits. The tree-harvesting titan expects to complete the evaluation of the businesses by the first quarter of 2006, with the exception of Carter Holt Harvey, whose future will be determined by the end of the year.

International Paper said it will continue to operate the businesses "to meet the needs of customers and generate earnings for shareowners."

Wall Street reacted positively to the news, as shares of International Paper rose $3.54, or 11.5%, to $34.20.

The after-tax proceeds of the program will vary depending on the mix of businesses sold or spun off, but the range could be $8 billion to $10 billion. About 40% to 50% of the net proceeds will be used to reduce debt.

International Paper said the plan will improve its overall profitability. The company expects average annual cost savings of about $400 million over the next several years.

In both the uncoated paper and packaging segments, the company will realign its U.S. mill system.

The company said in the uncoated paper division, it will convert the 350,000-ton-a-year uncoated paper machine at Pensacola, Fla., to a 500,000-ton-a-year lightweight linerboard operation. The conversion will cost about $100 million and will take place over the next 24 months.

The company expects to stop producing uncoated paper at Pensacola by the first quarter of 2007 and begin production of lightweight linerboard shortly thereafter. International Paper is also studying whether to shut down up to 300,000 tons of production at Bastrop, La. The evaluation should be complete by the end of the year.

Part of the volumes lost by the potential downsizing at Bastrop and the conversion of the Pensacola mill may be offset by investments in the company's lowest-cost mills.

For the packaging business, the company is looking at closing the Fort Madison, Iowa, 100,000-ton-a-year corrugating medium mill by the end of the third quarter. Additionally, International Paper will consider closing the Pineville, La., 400,000-ton-a-year linerboard mill or equivalent capacity elsewhere, selling or closing the Terre Haute, Ind., 190,000-ton corrugating medium mill and shedding its interest in the 60,000-ton-a-year Groveton, N.H., corrugating medium mil.

The company will also assess areas where it might convert existing linerboard capacity to corrugating medium if it can do so on a lower-cost basis.

Also, International Paper will consider moving its Stamford, Conn., headquarters to Memphis. That evaluation should be finished within the next 30 days.

Shares of other major players in the paper sector were also higher.

Georgia-Pacific

(GP)

was up 5% to $33.84,

MeadWestvaco

(MWV)

gained 3% to $28.27 and

Weyerhaeuser

(WY) - Get Report

rose 3% to $66.50.