International Paper in hostile bid for Temple-Inland

International Paper, the world’s largest paper and pulp company, has launched what could be a lengthy pursuit of competitor Temple-Inland, making a $3.3bn bid approach that was rejected by the target’s board.

The move is an attempt to continue consolidation of the US paper packaging industry, which took a step forward earlier this year with Rock-Tenn’s $3.5bn deal to buy Smurfit-Stone Container, completed at the end of last month.

Temple-Inland, based in Austin, Texas, is the third-largest US producer of corrugated cardboard boxes, with 12 per cent of the market. It also makes building products.

John Faraci, International Paper’s chief executive, made the first approach to Doyle Simons, Temple-Inland’s CEO, on May 17, and then followed up with a call, a further letter and a face-to-face meeting between the two sides.

Memphis, Tennessee-based International Paper was offering $30.60 per share, it said, which represented a 44 per cent premium to the Temple-Inland share price at mid-day on Monday. Temple-Inland’s board wrote to International Paper on Saturday June 4, rejecting the bid approach, prompting International Paper to make its intentions public.

In a letter sent on Monday to Mr Simons - addressed as “Doyle” - Mr Faraci said he was “very disappointed by your Board’s rejection of our proposal”. He added that the valuation of 9.2 times 2011 earnings before interest, taxation, depreciation and amortization was more generous than the price paid by Rock-Tenn to Smurfit-Stone, and was “a highly attractive offer… especially given the slow growth of the packaging industry and the low likelihood of a meaningful rebound in building products for at least the next several years.”

Mr Faraci said he was making the letter public in an attempt to go over the heads of the company’s board to its shareholders, saying: “Your refusal to engage with us will only further delay the ability of your shareholders to receive the substantial value represented by our all-cash offer. We are ready to meet with you and your team immediately to discuss next steps toward achieving a friendly, negotiated transaction.”

In response, Temple-Inland said the International Paper bid approach “grossly undervalues” the company, and was “an opportunistic attempt to grab the company on the cheap” while its stock price was depressed by the weakness of the housing market. Mr Simons also made public his letter of rejection to Mr Faraci, setting out those arguments.

Shares of Temple-Inland rose 42.5 percent to $29.94 in after-hours trading. Shares of International Paper rose 3.7 percent to $30.75.

International Paper is advised by Evercore and UBS, Temple-Inland by Goldman Sachs.

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