MEMPHIS International Paper is buying smaller rival Temple-Inland Inc. for $4.3 billion after sweetening its bid and taking on some debt, but the deal still faces the scrutiny of the U.S. Justice Department.
If the sale goes through, it would give the combined company roughly a 40 percent share of the corrugated packaging materials market in North America.
Both companies said there will be financial considerations if the sale fails to pass antitrust muster after federal officials review it. Memphis-based IP is the largest producer of corrugated packaging in North America, while Temple-Inland is No. 3.
Its unlikely that the Justice Department will file a complaint to stop the proposed merger because product in other paper industries, such as office paper, is more concentrated than the International Paper deal, according to Montreal-based BMO Capital Markets analyst Stephen Atkinson.
This should not be seen as a threat, he said. He added that the $32-a-share price, although its up from Junes offer of $30.60 a share, is still a bargain.
This is very much a story of optimizing logistics and management, Atkinson said. It very much reflects whats going on in the marketplace right now.
If the merger were to be scuttled over antitrust issues, International Paper could be required to pay Temple-Inland $200 million, the merger agreement states.
The deal was described as a friendly one on Tuesday by IP, which also will assume $600 million in debt as part of the transaction.
International Papers stock rose $2.28 per share to close at $27.77 in New York Stock Exchange trading Tuesday afternoon.
The proposed deal has been approved by the boards of both companies. If shareholders and regulators follow suit, it could close during the first three months of 2012.
IP said Tuesday the proposed buyout probably would add to its earnings the first year after the deal is done, and that it could save about $300 million a year within the first two years.