International Paper Pays $6 Billion for Board Units

March 17 (Bloomberg) -- International Paper Co., the world's largest forest-products maker, agreed to buy containerboard, packaging and recycling operations from Weyerhaeuser Co. for $6 billion to expand in the U.S. and Mexico.

The cash transaction includes nine containerboard mills, 72 packaging factories as well as other sites employing a total 14,300 employees. The net purchase price is equal to about $4.6 billion including tax benefits, Memphis, Tennessee-based International Paper said in a statement today.

International Paper forecast it can shave $400 million in costs integrating Weyerhaeuser's factories. North American paper companies are merging and closing capacity to defend margins, under pressure from higher fiber and energy costs. Chief Executive Officer John Faraci sold timberlands, sawmills and beverage-packaging units to focus on fine paper and corrugated cardboard, two markets where prices are holding up better.

``This deal represents a compelling opportunity,'' Faraci said in the statement. ``We expect the combined packaging business will generate stronger cash flow'' and higher margins than either standalone business, he said.

The paper and cardboard maker is little changed in U.S. trading this year, valuing International Paper at $13.8 billion. Smurfit-Stone Container Corp., a rival U.S. maker of corrugated boxes based in Chicago, has dropped 29 percent in the period.

Adding Mills

International Paper will finance the transaction through debt and the U.S. company has already secured commitments from ``several leading'' lenders. The acquisition will add to earnings from 2009, with 40 percent of the targeted benefits coming through within 12 months of completion.

The company's new mills will supply the U.S. and Mexico, Faraci said. They'll be added to a portfolio that includes a corrugated box factory in Morocco, a pulp and paper mill in Brazil, and a 50 percent stake in Russia's Ilim Group, which makes pulp, paper and board.

``All of this will make our packaging business more competitive, more profitable and better able to serve customers,'' senior vice-president Carol Roberts said in the statement.

For Federal Way, Washington-based Weyerhaeuser, the deal marks a further reverse in an expansion strategy that from the 1960s saw the timber company diversify into timber-related markets through acquisitions. North America's largest timber company, founded more than 100 years ago, sold fine paper assets to Domtar Corp. last year.

International Paper exited its lumber division through a deal with Canada's West Fraser Timberland last year. West Fraser became North America's second-largest lumber producer following the purchase.