Temple-Inland rejects second hostile bid from IP, time is on International Paper's side

Packaging industry analysts are calling International Paper’s bid to take over Temple-Inland “patient hostile.”

Temple-Inland’s (TIN) board of directors has now rejected a second offer from IP — this one just last Monday in the amount of $30.60 per share because it feels the offer grossly undervalues the company.

Specifically, Forbes, Inc. reported, Temple-Inland said the offer does not recognize expected benefits in box plant transformation, the company's low-cost building products operations, and its strategic place in the industry, among other shortcomings.

"Since we launched the 'new' Temple-Inland in January 2008, we have delivered superior results to our stockholders compared with our corrugated packaging peers, building products peers, and the S&P 500. The Temple-Inland Board is unanimous in its belief that the offer grossly undervalues Temple-Inland and its prospects, including its position as the return on asset leader in the corrugated packaging industry, expected benefits from box plant transformation, its low-cost building products operation, and its strategic place within the industry as the third largest producer of corrugated packaging in North America," Doyle R. Simons, chairman and CEO of Temple-Inland, said in a statement released in conjunction with the rejection announcement.

In the midst of the second offer, TI reported its second quarter earnings —17 cents per diluted share versus 15 cents per share in the first quarter. Second quarter net income was $19 million versus $16 million in the first quarter. Results were down from the same time last year, which was 18 cents and $20 million.

Memphis, Tenn.-based IP made its first offer in June, which was rejected, and made a second, unsolicited offer on July 11. Temple-Inland’s board has recommended its share holders reject the offer, too.

But, as the analysts pointed out in June, International Paper has pockets deep enough to take its time in structuring the acquisition.

Hence the term “patient hostile.”

TI, which is incorporated in Delaware, has a 10-member board with four members up for reelection each year. Under Delaware law, the company can push its next meeting no more than 13 months from the last one — which means June or July 2012. If International Paper is successful and elects its own four members to the board, it would still be short of votes and would have to wait yet another year to garner the majority needed to approve the takeover.

While the move may not seem to make much sense, analysts say that it keeps pressure on the Temple-Inland board and to extract additional information from the Austin, Texas-based company.

Temple-Inland owns and operates seven containerboard mills and more than 40 box plants, including one each in Bogalusa.

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)