IP Commencing Tender Offer to Acquire Outstanding Shares of Temple-Inland

Print this article | Send to Colleague

IP chairman and CEO John Faraci said that "we believe Temple-Inland's price expectations are unrealistic and their unwillingness to engage in any meaningful discussions with respect to value has left us with no alternative but to make our offer directly to Temple-Inland shareholders. While we prefer to reach a negotiated, friendly deal, we are committed to remaining disciplined and completing this transaction at a fair price for both companies' shareholders. We are confident in our ability to secure the necessary regulatory approvals to complete this transaction in a timely manner."

Faraci added that "we respect Temple-Inland, but we disagree on the realistic standalone value of the company, which we believe is currently $21 to $24 per share. The premium we are offering is substantial, the multiple is well above recent directly comparable transactions, and we are providing Temple-Inland shareholders the certainty of cash in the midst of a very uncertain economic environment. At $30.60, we believe our offer fully reflects the future business plans and economic outlook for Temple-Inland and for the sector, including the current environment and outlook for containerboard, the potential cyclical improvement in Temple-Inland's building products segment and near-term expected increases in Temple-Inland's earnings. We are confident that Temple-Inland shareholders support a transaction, and it is now incumbent upon the Temple-Inland Board to take the next step."

International Paper noted that its fully financed, all-cash offer represents compelling value when compared against all reasonable metrics and precedents, including:

• A 46% premium to Temple-Inland's closing price of $21.01 on June 6, the last trading day prior to public disclosure of the offer
• A 30% premium over the present value of average analyst price targets for a standalone Temple-Inland of $23.57
• A highly attractive multiple of 9.8x Temple-Inland's 2011 estimated EBITDA (9.0x excluding timber tax liability) versus forward EBITDA multiples of recent precedent transactions of 6.1x for Smurfit-Stone and 6.3x for Weyerhaeuser's corrugated packaging business, and well above Temple-Inland's average forward EBITDA multiple of 6.1x since 2008
• The fact that IBES research estimates for Temple-Inland's EBITDA have come down since IP's proposal was made public, given market expectations
• A significant premium to Temple-Inland's standalone value which, based on pre-offer trading and independent analyst estimates of Temple-Inland's earnings potential, IP and third parties credibly estimate at $21 to $24 per share. This compares with Temple-Inland's contention that standalone value should reflect multiple expansion to near 7x applied to an above-average estimated EBITDA for 2012 – a view we believe neither investors nor third parties share
• Realization of the benefits from a potential cyclical improvement in Temple-Inland's building products segment, even with a recovery uncertain and likely years away
• The benefits of more than half of the synergies that are expected to result from the combination
• The certainty of cash, versus the uncertainty of any potential future benefits to shareholders that Temple-Inland's current business plan may, or may not, deliver through cyclical and operational improvement.

International Paper has secured committed financing from UBS Investment Bank, and the offer will not be conditioned on financing.