Yahoo Finance Suzano Approaches International Paper on Bid, Reuters Says
(Bloomberg) -- Suzano SA, the world’s largest pulp producer, approached International Paper Co. about a potential all-cash offer valuing the US company at almost $15 billion, Reuters reported.
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The potential bid of $42 a share by the Brazilian producer was communicated verbally and a formal proposal may be submitted in coming days, Reuters said, citing people familiar with the matter. Such an offer would be a 14% premium to International Paper’s closing price Monday.
The move comes less than a month after International Paper agreed to buy UK packaging rival DS Smith Plc for £5.8 billion ($7.3 billion). Suzano is in talks with potential lenders to finance its transaction, the terms of which would require International Paper to abandon the deal with DS Smith, according to Reuters.
International Paper is likely to reject Suzano’s offer as inadequate, the report said.
Suzano said in a filing “there is no formal document or celebration of any agreement” by the company and that no decision has been taken regarding a potential deal.
Memphis-based International Paper said in a statement Tuesday that it had no comment on rumors or speculation. The company said it is focused on completing its combination with DS Smith, “which offers a unique and highly compelling opportunity to create significant shareholder value above its base plan.”
The paper and packaging sector is in the midst of consolidation. Last year, Smurfit Kappa Group Plc agreed to acquire WestRock Co. to create an Irish-American powerhouse.
The industry benefited from a surge in demand for deliveries during the pandemic as consumers under lockdown ordered more goods online. It has since weathered a slowdown as e-commerce returned to more normal levels, weighing on profits across the industry. Earnings at International Paper shrank to the lowest in more than a decade last year.
A bid for International Paper would be the latest attempt by a foreign company to snap up a US giant, following Nippon Steel Corp.’s contentious takeover of United States Steel Corp. International Paper was founded more than a century ago in 1898 through the combination of 17 pulp and paper mills.
It would also be the biggest cross-border purchase by a Brazilian company since Vale SA bought Inco Ltd. in 2007 for about $17 billion.
For Suzano, the move would mark a first step into a much-anticipated push for internationalization and allow it to diversify operations into packaging and enter the US market. The company controls almost one-third of global capacity for hardwood pulp, a key ingredient in tissue and writing paper that’s also used in some absorbent products.
Suzano is currently going through a management change, with long-time Chief Executive Officer Walter Schalka about to be replaced by Joao Fernandez de Abreu.
While International Paper trades at a higher price relative to earnings than Suzano, the Brazilian company has for nearly a year commanded a higher market value that its US rival.
Shares of International Paper rose as much as 12% in New York trading, the biggest intraday gain since March 2020, before closing up 5.2%. Suzano ended 12% lower in Sao Paulo in its biggest loss in more than four years. DS Smith dropped sharply in London trading and then erased most of the decline.
Suzano’s dollar bonds fell across the curve on the back of the news. Notes maturing in 2029 slid as much as 4.7 cents on the dollar to 98.8 cents Tuesday, according to Trace data.
“We’re all waiting to hear how Suzano is planning to finance the acquisition, and how the rating agencies will react,” said Roger Horn, senior emerging-market strategist at Mariva Capital Markets. “At a first glance, it doesn’t make a lot of sense” as the management has long made the point that it benefits from highly competitive cash costs in Brazil, especially in comparison to its North American peers.
“Suzano’s pulp business is theoretically more cyclical than IP’s packaging business, so one could argue that this potential combination would help Suzano not only increase scale but also reduce earnings volatility,” Barclays analysts including Gaurav Jain said in a note to clients.
Still, the deal would significantly deteriorate Suzano’s debt metrics, making it unlikely. “If anything, we believe this could make IP even more determined to complete the DS Smith transaction,” the analysts wrote.
--With assistance from Vinícius Andrade.
(Updates with Suzano comment in fifth paragraph)
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