International Paper builds a cardboard empire
The #1 US forest-products company International Paper announced it would buy the containerboard (the corrugated cardboard used in boxes), packaging and recycling businesses from its rival Weyerhauser. The deal is for around $6 billion, and involves 2 box-making factories, 9 containerboard mills, and 19 recycling plants.
The buy will extend International Paper's already large cardboard box division, and make it the #1 containerboard company, with a 29% US share. Second place goes to Smurfit-Stone Container with 19% market share.
It's a case of the two rivals heading indifferent directions. Weyerhauser is concentrating on growing and milling lumber as well as building homes International Paper has moved into the cardboard packaging industry in a big way, and this deal will double its capacity in that area. At the same time, it has been selling its timber operations, its finished paper products, and its construction board division.
And, as we learn from an article in the Wall Street Journal ("International Paper Thinks Inside Box, Buys Package Rival", 3/17/08),
The transaction shows the power of access to cash during an economic slump. Executives of International Paper, based in Memphis, Tenn., said one reason they were able to forge the agreement with Weyerhaeuser, based in Federal Way, Wash., was by having a balance sheet with relatively little debt and strong cash flow. Some other competitors who also expressed interest in Weyerhaeuser's containerboard assets had more difficulty in arranging financing.
Right now , cash-rich companies have enormous advantages. Weyerhauser, once almost as large as International Paper, has been shrinking itself. In 2006, Weyerhaeuser sold its high-grade paper business to Canada-based Domtar Inc.
International Paper, like a smart gin rummy player, discards unwanted assets and picks up other company's discards. This move makes both companies more specialized, more vulnerable perhaps to downturns in a narrower sector, but also much more able to get the benfits of oligopoly.
