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International Paper Agrees to Buy Federal Paper in $3.5 Billion Deal

November 6, 1995

NEW YORK (AP) _ International Paper Co. moved Monday to solidify its status as the world’s biggest paper products company by reaching agreement to buy Federal Paper Board Co. in a $3.5 billion buyout deal that includes the assumption of debt.

The offer of $55 a share in cash and stock was 21 percent more than Federal Paper’s closing price on Friday, and the Montvale, N.J.-based company’s share price leapt on the news.

Federal Paper shares surged up $6.50 a share, or 14.3 percent, at $52 on the New York Stock Exchange. International Paper was off $1, or 2.7 percent, at $36.12 1/2.

The deal comes just months after Kimberly-Clark Corp. of Dallas agreed to buy Scott Paper Co. of Philadelphia in a $7.4 billion merger.

Analysts say the paper industry has been strong although some signs have appeared that prices may have peaked. Companies across the United States have been looking to alliances to cut costs.

International Paper said the deal would make it more efficient, give it world-class mills in Riegelwood, N.C., and Augusta, Ga., a recycled paperboard plant in Connecticut and a paper mill in Scotland that is an important supplier to the United Kingdom.

Federal Paper Board said the deal is a good one for its shareholders and enables International Paper to serve a broader range of customers.

``This is a great deal for Federal shareholders,″ said Linda Lieberman, a managing partner at Bear Stearns & Co. ``But it is hard to get excited about what this does for IP.″

With $1.57 billion in revenue last year, Federal Paper is about one-tenth as large as International Paper which had $15 billion in revenue.

The deal is subject to approval by Federal Paper Board’s shareholders and regulatory authorities. It is expected to close in early 1996.

International Paper will pay $55 a share in cash and stock for each Federal Paper Board share. That portion of the deal will cost about $2.45 billion.

Federal Paper shareholders will be given a choice on whether they want stock or cash. But International Paper said it would pay no more than 49 percent in cash.

Federal Paper also has about $950 million in debt which International Paper is assuming in the deal.

Lieberman doubts there would be any significant antitrust objections from federal regulators to the deal. The companies say they are involved mainly in complementary rather than competing businesses.

International Paper, which is based in Purchase, N.Y., produces printing papers, packaging and other forest products. It has manufacturing operations in 28 countries, owns or leases about 6 million acres of timberland and exports products to more than 130 nations.

In addition to its mills in North Carolina, Georgia, Connecticut and Scotland, Federal Paper has sawmills and other manufacturing operations and owns or leases 700,000 ares of timberland.

John Georges, International Paper’s chairman and chief executive, said Federal Paper invited his company to make a bid and it found ``a first-class organization with excellent facilities.″

Quentin J. Kennedy, executive vice president for Federal Paper, said the company had been examining its options for several months with the help of two investment banking firms. He said the company had discussions with ``several other companies″ and that International Paper made the best offer.

Federal Paper has invested over $1.7 billion on improving its mills and other facilities over the past six years. Kennedy said company management didn’t know how much more time and investment it would take to approach the stock price that International Paper was offering and decided to sell.

He said Federal Paper has capabilities in making paper cups and recycled paperboard for packaging that International Paper currently doesn’t have.

Georges said International Paper will also benefit from Federal Paper’s representation in the United Kingdom.

Georges said he didn’t think any asset sales would be required because the combined company still has ``lots of competitors.″

He said there will be some ``modest overhead reductions″ including job eliminations where corporate staffs overlap but declined to guess how many jobs may be lost. Federal Paper employs about 6,800 people, while International Paper employs 70,000.

He expects to get added earnings from improved productivity as a result of the deal and more aggressive management of their timberlands.

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