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An International Paper (NYSE: IP) press release announced today that the company is intending to purchase the Containerboard, Packaging and Recycling (CBPR) businesses of Weyerhaeuser (NYSE:WY)for $6 billion in cash. The deal is expected to close in Q3 2008, subject to regulatory approval and financing.Due to the realization of tax benefits based upon International Papers purchase of Weyerhaeuser assets rather than stock, IP shall realize tax benefits in the amount of approximately $1.4 billion, making the actual purchase price closer to $4.6 billion.
International Paper Chairman and Chief Executive Officer John Faraci is quoted in the press release as stating: "This deal represents a compelling opportunity for International Paper and our share owners at a very attractive valuation... integrating Weyerhaeuser's CBPR business into our North American packaging platform fits very well with our strategy to improve our earnings, cash flow and returns by strengthening existing businesses. We expect the combined packaging business will generate stronger cash flow and higher EBITDA margins than either standalone business."
Even though International Paper sees considerable upside potential in this acquisition, as of this writing, shares of International Paper have lost nearly 8.5 percent on the day. This may signal a good near term opportunity to buy into company shares when considering that the company indicates this deal holds income increase potential of as much as $400 million annually. The company sees this acquisition improving profitability over a three year period of assimilation, with approximately 40% of that improvement to be realized within the first 12 months of closing the deal.
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