International Paper, Suzano deal seems unlikely - analysts

A Suzano (NYSE:SUZ) potential acquisition of International Paper (NYSE:IP) seems unlikely, especially since Suzano would likely need to raise its bid sharply, according to a Jefferies analyst.

The commentary comes after Reuters reported earlier Tuesday that Brazilian pulp and paper company Suzano (SUZ) approached IP about a $42 a share all-cash offer, at least partly in an effort to break up IP's planned purchase of DS Smith (OTCPK:DITHF). IP shares jumped 6% on the news, while Suzano ADRs dropped 9%.

"With the stock at a low, excitement with a new incoming CEO, and while mixed investor reception on the SMDS deal, it's hard for us to imagine IP would look to sell to Suzano unless the offer was significantly upsized from here, which Suzano does not appear to have the balance sheet," Jefferies analyst Philip Ng, who has a told rating and $38 price target on IP, wrote in a note on Tuesday.

The more likely scenario is that IP may be willing to sell its pulp business rather than the entire company to Suzano (SUZ), according to Ng and Seaport analyst Mark Weintraub.

"So is this all smoke, or might there be any fire?" Weintraub, who has a neutral rating on IP wrote in a Tuesday note. "Hard to say, though one possibility is that Suzano might have interest in IP's pulp business and there could have been some `lost in translation' confusion on currency....almost 15B reals is not an entirely unrealistic price in relation to IP's pulp business."

IP agreed to buy DS Smith last month for $9.9 billion and Mondi (OTCPK:MNODF), which originally agreed to acquire DS Smith, backed away from its offer.