Analysts say International Paper has pockets deep enough for Temple-Inland if it desires

Early indicators, according to Bloomberg’s, is that Temple-Inland’s (TIN) “poison pill” plan to avoid a hostile takeover of the Austin, Texas-based firm by Memphis-based International Paper (IP) may be working — to raise the ante.

The news was first reported Monday when IP issued a press release that was quickly picked up by Bloomberg's Business and The Wall Street Journal.

Bloomberg Business reports, “To side step Temple-Inland’s so-called poison pill and negotiate a friendly deal, International Paper may be forced to compensate the Austin, Texas-based company’s investors if it wants to boost its corrugated-packaging market share to 37 percent in North America.”

Industry analysts say IP, which currently controls 27 percent of the market,  is “well-positioned” to complete the deal if it wants Temple-Inland. International Paper said it first made a takeover proposal to Temple-Inland on May 17.

Temple-Inland owns and operates the Temple-Inland paper bill and box plant in Bogalusa, one of the five largest employers in Washington Parish.

On Monday, IP proposed to acquire the entire stake in Temple-Inland for $30.60 per share— which represented a 44 percent premium to TI’s price as of June 6.

TI’s board rejected that offer, saying it “grossly undervalued” the company and was not in the best interest of the stockholders.

In a bylined story, Bloomberg Business reported TI may be able to “squeeze $1.1 billion more out of International Paper Co. (IP)’s bid that’s already the most costly in the packaging industry in four years.

“The unsolicited $4.1 billion offer values the corrugated cardboard maker at 9.8 times the last 12 months’ earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That’s the most expensive for a packaging acquisition greater than $100 million since 2007. Based on next year’s higher projected Ebitda, the deal is at a discount to the industry median of 8.2 times, signaling Temple- Inland may command a 28 percent increase to $5.26 billion.

With a market value of $13 billion and committed financing from UBS AG, the world’s largest paper and pulp producer can afford to raise the $30.60-a-share bid to as high as $41, according to Barclays Plc.

According to RTT News, under the stockholder rights plan adopted by the Temple-Inland board — also called as "poison pill" — the 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 to purchase a number of Temple-Inland's common shares having a market value of twice such price.

Temple-Inland said International Paper is acting now because Temple-Inland's building materials business has weakened in the economic downturn.

Temple-Inland added that the deal would probably be scrutinized by federal antitrust regulators.

Temple-Inland has managed to stay in the black through cost cutting as its building products unit has been hurt by continued housing-market weakness. The company in April reported that it swung to a first-quarter profit, improving the bottom line over a prior-year period hurt by unusually high input costs and severe weather. The company's corrugated packaging segment, which accounts for most of its business, more than doubled its operating profit to $98 million.

The mill's history dates to 1906, when the Goodyear family established the Great Southern Lumber Co., then the largest sawmill in the world. The Goodyear's sold the mill and Gaylord Caontainer Corp. to Crown Zellerbach, which owned it until 1986, when it was sold to Temple-Inland.

(Published first at http://www.wpnewsblog.blogspot.com)