Temple-Inland Rebuffs International Paper’s Acquisition ProposalJune 7, 2011
The shareholder rights will be exercisable only if a person or group acquires 10 percent or more of Temple-Inland’s common stock. Each right will entitle stockholders to buy one one-hundredth of a share of a new series of junior participating preferred stock at an exercise price of $120.
If a person or group acquires 10 percent or more of Temple-Inland’s outstanding common stock, each right will entitle its holder (other than such person or members of such group) to purchase, at the Right's then-current exercise price, a number of Temple-Inland’s common shares having a market value of twice such price. In addition, if Temple-Inland is acquired in a merger or other business combination transaction after a person has acquired 10 percent or more of the company’s outstanding common stock, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company’s common shares having a market value of twice such price. The acquiring person will not be entitled to exercise these Rights.
Tempe-Inland’ initial statement noted that its board authorized Doyle R. Simons, Chairman and CEO of Temple-Inland, to communicate its rejection to John Faraci, International Paper’s Chairman and CEO.
“Since we launched the ‘new’ Tempe-Inland in January 2008, we have delivered superior results to our stockholders compared with our corrugated packaging peers (including IP), building products peers, and the S&P 500. Since that time, our total return to stockholders of 22 percent greatly exceeds the 5 percent total return that IP has achieved. Through our proven ability to execute our strategy focused on maximizing return on investment (ROI) and profitably growing our business, the board believes the company will continue to provide superior results for our stockholders," said Simons. “As the economic recovery continues and the benefits from our strategy continue to be realized, it is the stockholders of Temple-Inland who should gain from those anticipated benefits, not the stockholders of IP."
In its review of International Paper’s unsolicited proposal, the Temple-Inland board considered a number of factors and came to the following conclusions:
• International Paper’s unsolicited proposal grossly undervalues Temple-Inland and its future prospects:
* Based on the company’s internal estimates, as well as Wall Street consensus estimates, the Board believes the company’s accelerating growth of earnings and ROI will result in superior value to that offered by International Paper in a sale transaction.
* International Paper’s claims about its proposal rely on valuation metrics from "precedent" transactions that involved underperforming assets that are not comparable to Temple-Inland and its industry-leading returns, high-quality assets and low-cost structure.
* The retrospective focus of these "comparables" does not take account of the profound changes that are occurring in the corrugated packaging industry, which have led to reduced pricing volatility, higher average prices, and widely-held expectations that these positive industry trends will continue.
* The proposal fails to reflect the significant value the Company’s box plant transformation II project will generate for Temple-Inland and its stockholders.
* International Paper overstates the Company’s actual net debt by $91 million and the net present value of our timber financing liability by at least $200 million.
• The timing of International Paper’s unsolicited proposal is extremely opportunistic and disadvantageous to Temple-Inland stockholders:
* Housing markets are at historically low levels, temporarily depressing the value of our building products operations. International Paper is attempting to take advantage of our stockholders by moving to grab the Company at a bargain price at a time when there is little or no market value being ascribed to building products.
* As International Paper has consistently highlighted to the investment community, corrugated packaging demand remains below prerecession levels, but is expected to recover as the economy continues to improve. International Paper is attempting to time its offer before corrugated packaging demand returns to prerecession levels and pricing improves as expected by industry analysts.
* An estimated $90 million of the annual cost savings from our box plant transformation II are still ahead of us—our stockholders, not the stockholders of International Paper, deserve to receive the benefit of the significant capital we have invested in this project.
• The potential acquisition will likely face prolonged and rigorous investigation by antitrust authorities and an uncertain outcome:
* A combined company would control an almost 40% share of North American containerboard capacity.
* Given the expected scrutiny by U.S. antitrust authorities, it is likely that a potential transaction would require a significant amount of time to complete, even under the most favorable circumstances.
Goldman, Sachs & Co. is acting as financial advisor to Temple-Inland, and Wachtell, Lipton, Rosen & Katz is acting as Temple-Inland’s legal counsel.
Temple-Inland Inc. is a manufacturing company focused on corrugated packaging and building products. The fully integrated corrugated packaging operation consists of 7 mills and 59 converting facilities. The building products operation manufactures a diverse line of building products for new home construction, commercial and repair and remodeling markets. Temple-Inland's address on the World Wide Web is www.templeinland.com.
About International Paper
International Paper (NYSE: IP) is a global paper and packaging company with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include uncoated papers and industrial and consumer packaging, complemented by xpedx, the company's North American distribution company. Headquartered in Memphis, Tenn., the company employs about 59,500 people in more than 24 countries and serves customers worldwide. 2010 net sales were more than $25 billion. For more information about International Paper, its products and stewardship efforts, visit www.internationalpaper.com.