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News > Deals
IP's $7.3B buys Champion
May 12, 2000: 6:29 p.m. ET

Top paper and forestry firm inks merger deal after UPM bows out of bidding war
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NEW YORK (CNNfn) - International Paper late Friday agreed to acquire rival Champion International Corp. for $7.3 billion in cash and stock, after UPM-Kymmene bowed out of the bidding war for the forestry and paper products company.

Purchase, N.Y.-based International Paper said it would pay $75 per share -- $50 per share in cash and the remaining in stock -- for Champion, which originally inked a $6.6 billion merger deal with UPM in March. The company will also assume roughly $2.3 billion in Champion debt.

Pending regulatory approvals, the two companies hope to complete the transaction sometime next month.

"We've said all along that bringing together International Paper and Champion makes good sense because of the tremendous opportunities presented by a combined organization," said John Dillon, International Papers' chairman and chief executive.

graphicThe deal was made possible by UPM's decision Friday afternoon to bow out of the bidding war for Champion.

In a prepared statement, Juha Niemela, president and chief executive officer of Finnish-based UPM, said the company's board decided to scrap its deal with Champion because "it has become clear that the merger ... cannot be carried out at a price level acceptable to UPM-Kymmene shareholders."

Niemela went on to say he expected UPM to "be an active player in the consolidation of the forest industry," hinting at further merger activity within that industry. Analysts said UPM would almost certainly look to fill a gaping North American hole in its operations.

UPM's withdrawal left the door open for International Paper, which on Wednesday presented Champion with its $75 per share cash and stock offer, besting UPM's revised $70 per share all cash bid submitted late Tuesday.

graphicThe company's original merger agreement with Champion (CHA: Research, Estimates), signed in March, valued Stamford, Conn.-based Champion at $6.6 billion and carried a $200 million breakup fee. But analysts criticized that as expensive -- a 30 percent premium to Champion's pre-offer price -- arguing it would not be able to generate as much synergy from the takeover.

UPM's stock has steadily declined since then, lowering the value of its initial offer by about $1 billion and clearing the way for International Paper (IP: Research, Estimates) to enter the fray.

Both companies raised their initial offers earlier this week, but Champion's board declared International Paper's $75 per share cash and stock bid "superior," giving UPM three business days to come up with a higher offer or cancel its merger agreement.

Analysts had projected that the only way UPM could match or exceed International Papers' bid was through and all-cash offer near the $75 per share IP offered. But even then, analysts theorized, International Paper had the financial wherewithal to raise its bid once again.

International Paper's bid equates to $50 a share in cash and the remainder in stock. The Purchase, N.Y., company believes it could wring $425 million in annual cost savings from the merger.

International Paper announced plans earlier this year to shed $3 billion in non-core assets, a number many analysts said could now rise along with the sweetened Champion bid.

The deal fortifies International Paper's position as the world's top forestry and paper products company, boasting annual revenue of nearly $26 billion.

Analysts said the potential union boasts several synergies and significant cost savings beyond the $425 million International Paper is projecting, including possibly selling thousands of acres of timber holdings.

Champion would also significantly boost International Paper's Latin American holdings and add valuable distribution agreements with Asian and European producers.

Analysts said the deal will be accretive to International Paper's core earnings before the amortization of goodwill in its first year of operation.

Champion's stock gained 7/8 to 74-1/4 in trading Friday, but fell to 72 in after-hours trading after UPM pulled out of its deal. International Paper shares were unchanged at 36-13/16 Friday while UPM's (UPM: Research, Estimates) American depository receipts closed up 5/8 at 29-1/8. Back to top

  RELATED STORIES

IP raises Champion bid - May 10, 2000

IP bids for Champion, in face of UPM-Kymmene deal - April 25, 2000

UPM pays $6.6B for Champion - Feb. 17, 2000

  RELATED SITES

International Paper

Champion Paper

UPM-Kymmene Group


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.