IP gains $400 million more reducing stake in Graphic amid sales of offshore assets; fifth deal in last 4 months

Amid recent, major asset sales and a planned spinoff of its US printing paper business, International Paper (IP) for a third time reduced its share holdings in Graphic Packaging and affiliates with two transactions this week amounting to $400 million, according to a financial filing and local press reports in Memphis.

IP entered into a consent and waiver agreement with Graphic Packaging Holding Company in which Graphic Packaging agreed to repurchase from IP common units of Graphic Packaging for about $150 million, according to an IP SEC filing on Feb. 16.

Graphic Packaging also repurchased about $150 million of its ownership units for cash, and in another transaction, IP exchanged about 15.3 million ownership units for 15.3 million shares of Graphic stock, worth around $250 million, which it then sold, the Memphis Business Journal reported.

The consent agreement traces back to Jan. 1, 2018, when IP exited its coated paperboard solid bleached sulfate (SBS) consumer packaging business with a sale to Graphic Packaging valued at $1.8 billion.

Graphic Packaging, then the largest buyer of SBS boxboard at an estimated 200,000 tons/yr, acquired IP’s SBS mills in Augusta, GA, and Texarkana, TX, with combined capacity of 1.2 million tons/yr, and also four converting plants supporting 250,000 tons/yr of SBS cupstock and food service containers.

In the sale, IP retained a 20.5% stake in Graphic Packaging, with speculation at the time that IP may consider acquiring Graphic Packaging. It decreased its ownership stake twice in 2020, and now holds a stake of about 7%.

Divestment of assets. IP has made significant strategic moves in the last four months, including the sale of its Kwidzyn pulp and paper mill in Poland to European cartonboard leader Mayr-Melnhof Karton AG for about $812 million that was announced this month.

The mill has capacity to produce 740,000 tonnes/yr of folding boxboard, uncoated freesheet, specialty kraft papers, and market pulp on four machines.

In January, IP said it would sell its 90.38% outstanding shares of corrugated packaging supplier Olmuksan International Paper Ambalaj Sanayi ve Ticaret in Turkey to Mondi for about $55 million.

In early December, IP announced its intention to spin off its uncoated freesheet Printing Papers business into a standalone, publicly-traded company in order to focus on its corrugated packaging and market pulp businesses.

The creation of “SpinCo” will have $4 billion in estimated annual sales with expectations to be sold off in late 2021. The new company will include eight paper mills with total capacity of 2.9 million tonnes/yr of uncoated freesheet with mills in the US, Brazil, Russia, Poland, and France. The mills in Poland and France also have capacity to produce 400,000 tonnes/yr of coated boxboard.

And in October, IP completed the sale of its packaging business in Brazil to Klabin for $62 million, including four corrugated paper plants and three paper mills, with one mill to be sold off.

An industry analyst with knowledge of IP’s strategy told Fastmarkets RISI the company is not contemplating a new merger or major acquisition related to the sales of assets.

“I don’t think a large scale M&A is a priority,” he said, adding that tax “effectiveness” for the company was in play.

“They just don’t think these are good businesses,” he said of consumer packaging, printing papers, and offshore corrugated packaging units. “Organic investment and return on capital (ROC) is top of the list.”

“They are taking some of the ‘International’ out of International Paper,” he added.

Corrugated business contacts this week also surmised that IP may seek to increase its board-to-box system integration either by acquiring an independent US box company, or from building one or two large state-of-the-art corrugated facilities close to their mills.

“I think it’s clear that they want to be more of a pure play in containerboard,” an industry executive said.

–by [email protected]