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Weyerhaeuser’s sale process for its containerboard business is moving forward, but could have lost up to two key bidders, people familiar with the process told dealReporter.
Packaging Corporation of America (PCA), considered by most a lead contender for the assets, has “put its pencils down” despite initially being interested, said a person familiar with the process. PCA had doubts about a transaction given Weyerhaeuser’s asking price, the first person said, adding that PCA had not made any ground work or been engaged in the process as of late, although it was unclear whether it would return for a third round of bidding.
Additionally, Georgia-Pacific (GP) is no longer involved as a buyer, as previously reported by this news service.
Assuming GP and PCA’s absence, other logical bidders involved include Smurfit-Stone, Temple-Inland and International Paper, as reported by this news service.
While Smurfit-Stone and Temple-Inland are candidates for a tax-efficient Reverse Morris Trust transaction, International Paper would have to be a cash buyer for the containerboard business; a transaction that would create tax inefficiencies. Moreover, it has been said that a tax-efficient deal could save Weyerhaeuser in excess of USD 1bn, making an all-cash deal less attractive. Therefore, it was concluded that for International Paper to emerge as a successful bidder, it would need to significantly overpay. Such a move by International Paper could be unlikely, after the company’s stock had recently been nearing its 52-week low of about USD 31 per share following ongoing restructuring efforts, it was suggested.
This news service reported industry bankers’ skepticism towards Smurfit-Stone emerging as a buyer for Weyerhaeuser’s containerboard due to the required capital structure changes for a Reverse Morris Trust, and potentially a negative sentiment on the part of Weyerhaeuser shareholders towards taking Smurfit’s levered stock after the sale of its fine paper business to Domtar. Since that deal, Domtar stock, the currency paid to shareholders for the deal, has lost significant value and this may give shareholders reason to question taking Smurfit stock, it was said.
Yet despite these arguments, some are still tipping Smurfit as the most likely Reverse Morris Trust candidate, and ultimately buyer for Weyerhaeuser’s containerboard business. The first person familiar with the process said there is a rumor that Smurfit has been doing significant work to put a bid together for Weyerhaeuser. “I could understand why Smurfit would want to do that deal, but not why Weyerhaeuser would,” the person commented.
Temple-Inland, which this news service reported had recently entered the fray for Weyerhaeuser, has also been doubted as a realistic buyer, due to the size of a potential transaction. Even so, this news service reported that the company recently signed a confidentiality agreement to be engaged in the ongoing process for the business.
Industry bankers have previously indicated to this news service that Weyerhaeuser’s containerboard business could sell for somewhere between USD 5.3bn and 5.5bn. Although USD 5.5bn might be a realistic figure in a struggling market, it has been said that if Weyerhaeuser were to make the decision sell the containerboard in a healthier environment, it could command a price tag of USD 6bn.
Despite claims that PCA’s interest in the auction may be slowing, a third person following the process said it is possible PCA would undertake a strategy to appear as though it was no longer interested in the containerboard business. “It’s hard for me to imagine that they’re not still kicking around,” he said. With PCA gone, he added that the process would be left with three arguably disadvantaged bidders, namely Temple Inland, Smurfit Stone, and International Paper. If Morgan Stanley, Weyerhaeuser’s advisor, wanted to create a competitive race between three tax buyers, PCA’s exit would be a big loss for the seller, he said.
PCA did not return calls seeking comment.
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