NEW YORK – International Paper (IP), the world's largest forest products company, on Tuesday set a massive restructuring and may shed businesses that generate almost a third of its sales to focus on its main paper and packaging divisions.
Shares of International Paper opened more than 13 percent higher on the New York Stock Exchange (search). Before Tuesday's announcement, the stock was off nearly 30 percent for the year, and since the start of 2000, had underperformed the S&P Paper and Forest index by about 32 percent.
IP said it would look at selling or spinning off its stake in Carter Holt Harvey (search), its thin, coated papers business, its beverage packaging business, its Kraft Papers (search) business, Arizona Chemical (search), its wood products business and some or all of its 6.8 million acres of U.S. forestlands.
The businesses represent 30 percent of International Paper's 2004 sales and 40 percent of operating profits, and the full set of divestments would make IP a much smaller and more narrowly focused company.
"Bigger is not always better -- clearly IP understands that. The market wasn't giving them any credit for being the biggest. The market wasn't even giving them credit for the assets they had," said Steven Chercover, an analyst with D.A. Davidson. He owns no shares in the company and his firm does no banking for IP.
Once a Dow component, International Paper has labored under a poor pricing environment and slack demand in recent years. Its struggles of late have been seen as a broader sign of weakness for the industry given its position as the worldwide industry leader.
The company also said it would close or convert a number of mills across the country and will consider moving its corporate headquarters to Memphis, Tenn., in a plan to achieve $400 million a year in cost savings.
After the restructuring, IP will focus on uncoated paper, including envelope paper, forms and fluff pulp under brands like Hammermill and Postmark; and packaging products including containerboard and coated board.
IP said the evaluations of the various businesses would be finished by the first quarter of 2006. The company estimated after-tax proceeds of the various divestments could be as high as $8 billion to $10 billion, about 40 percent to 50 percent of which would be used to reduce debt.
The company said it would use 25 percent to 30 percent of the net proceeds to "return value to shareowners," though it did not specify if that would be as a dividend, share buyback or other program.
CIBC World Markets analyst Herve Carreau said he believes the moves could benefit the company, but that the bulk of the value generated would be through the sale of timberlands.
In June, IP warned that second-quarter profits could be as much as 30 percent below estimates on weak sales of industrial packaging and printing paper and high energy and raw material costs. Other major forest products companies are expected to post a profit shortfall for the second quarter as well.
IP shares were up $3.66, or 11.9 percent, at $34.32.
Shares in other major forest products players were broadly higher after IP's announcement, with Weyerhaeuser Co. (WY) and Georgia-Pacific. (GP) both up more than 4 percent.