HomeBusinessWhy the international paper supply is falling today

Why the international paper supply is falling today

A potential Brazilian buyer withdraws his offer for International paper (NYSE: IP) after the target rejected his overtures.

Investors hoping for a high premium were disappointed, with IP shares down 8% as of 1 p.m. ET.

IP chooses independence

International Paper is already part of a wave of consolidation sweeping the paper and packaging industry, with a deal in place to acquire the UK rival DS SmithBut in early May, IP went from hunter to hunted when news broke that Susano from Brazil was considering a bid for the American company.

On Wednesday, Suzano said it had ended its attempt to acquire International Paper after IP was unwilling to cooperate. Suzano said it walked away after IP was unimpressed by the highest price it was willing to pay.

Suzano was reportedly willing to pay as much as $15 billion in cash for IP.

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Enthusiasm for the potential deal was tempered by concerns that the U.S. government would be reluctant to allow a foreign takeover of one of its natural resource giants. There was also no public indication that major International Paper shareholders were pressuring IP management to negotiate.

Is International Paper a bargain?

As I said when the stock initially spiked on takeover rumors, buying on deal talk is dangerous. A rapid decline is no surprise now that Suzano has walked away. But all is not lost for International Paper as it charts its course as an independent company.

The company is in the early stages of an effort to make its operations more efficient and possibly divest lower-margin divisions such as its cellulose business, which could fetch as much as $2 billion if sold. There is also potential for upside, assuming the DS Smith deal closes and International Paper can integrate it successfully.

None of this will provide the immediate boost that a takeover would have provided, but there is every reason to believe that patient investors can still be rewarded by buying IP stocks.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool recommends DS Smith. The Motley Fool has a disclosure policy.

Why International Paper Supplies Are Falling Today was originally published by The Motley Fool

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