Brazilian pulp and paper company Suzano has approached Memphis-based International Paper Corp. to express interest in an all-cash acquisition valued at nearly $15 billion, according to people familiar with the matter. Less than a month ago, International Paper agreed to acquire British packaging company Desma for $7.2 billion, beating out London-listed rival Mondi. The deal, originally scheduled to close in the fourth quarter of 2024, could be disrupted if Suzano moves forward with its acquisition of International Paper.
Suzano has verbally communicated the $42-per-share offer to International Paper's board of directors and may submit a formal offer in the coming days, according to sources who spoke on condition of anonymity. The offer would represent a 14% premium to International Paper's closing price on Monday.
In response to this news, Suzano denied in a public statement reports published in financial media about the alleged acquisition by the US paper group International Paper. Suzano declared that although it is continuously analyzing market opportunities and investments, “Suzano has no formal document or celebration of any agreement, whether binding or not, nor has its governing body made any decisions or resolutions regarding the potential.
Another source said International Paper was prepared to reject Suzano's proposal as insufficient. Sources said Suzano, the world's largest pulp maker, is negotiating debt financing to support its bid and has informed International Paper that the offer is conditional on International Paper abandoning its deal with Desma.
Suzano declined to comment. International Paper issued the statement Tuesday afternoon. In keeping with its usual practice, International Paper does not comment on rumors or speculation surrounding recent media reports. The International Paper team, led by new CEO Andy Silvernell, is executing the business strategy and driving commercial and cost improvement initiatives across the portfolio to deliver best-in-class margins and significant earnings growth.
Additionally, as industry conditions continue to improve, International Paper will bottom out of the cyclical bottom line in terms of profitability. The company is also committed to completing its previously announced merger with Desma, which provides a unique and compelling opportunity to create significant shareholder value on top of its underlying plan.
The packaging industry has benefited from a surge in demand during the coronavirus pandemic as consumers placed more orders through e-commerce sites during global lockdowns. But as e-commerce growth returns to more normal levels after lockdowns are lifted, the industry is turning to transactions to sustain growth.
Last year, Ireland-based SmithKappa agreed to merge with U.S.-based Vesellock in a deal valued at $20 billion. International Paper said last month that the tie-up with Desma would expand its presence in Europe and deliver at least $514 million in annual pre-tax cash synergies, while a merger with International Paper would allow Suzano to expand its packaging business .
As the saying goes, there is no smoke without fire. If Suzano really plans to acquire International Paper, it will be the latest attempt by a foreign company to acquire an American giant after Nippon Steel Corporation's controversial acquisition of U.S. Steel. International Paper was founded more than a century ago through a merger in 1898 and currently operates 17 pulp and paper mills. It will also be the largest cross-border acquisition by a Brazilian company since Vale acquired Inco in 2007 for approximately US$17 billion.
For Suzano, the move will mark the first step in a much-anticipated internationalization process and allow it to diversify into packaging and enter the US market. The company controls nearly a third of global production capacity for hardwood pulp, a key ingredient in tissue and writing paper and also used in some absorbent products.
Suzano is in the midst of a transition period as CEO. The company has appointed Joao Alberto Fernandez de Abreu, the former head of rail operator Rumo, as its new chief executive, replacing Walter Schalka, who has led the company for 11 years. In February, Suzano reported that its fourth-quarter net profit fell 39% from a year earlier as lower pulp prices hurt revenue. While International Paper trades at a higher price relative to earnings than Suzano, the Brazilian company has been worth more than its U.S. rival for nearly a year.
International Paper shares rose as much as 12% in New York trading, their biggest intraday gain since March 2020, before closing up 5.2%. Sao Paulo's Suzano closed down 12%, its biggest drop in more than four years. Desma fell sharply in London trading before erasing most of the losses. Suzano's dollar bonds fell across the board after the news broke. Notes due in 2029 fell 4.7 cents to 98.8 cents against the dollar on Tuesday, Trace data showed.
"We are all waiting to see how Suzano plans to finance the acquisition and how the ratings agencies will react," said Roger Horn, senior emerging markets strategist at Mariva Capital Markets. "At first glance, it doesn't make much sense" because management has long been noted that it benefits from Brazil's highly competitive cash costs, especially compared to its North American peers.
"Theoretically, Suzano's pulp business is more cyclical than International Paper's packaging business, so one could argue that this potential merger would not only help Suzano gain scale but also reduce earnings volatility," including Barclays analysts including Gaurav Jain said in a note to clients.
Still, the deal would significantly worsen Suzano's debt metrics, making it unlikely to materialize. "If anything, we believe this could make International Paper more determined to complete the Desma deal," the analysts wrote.
