Int'l Paper to buy Weyerhaeuser unit for $6 bln

By Euan Rocha

NEW YORK (Reuters) - International Paper (IP.N: Quote, Profile, Research) said on Monday it has agreed to acquire Weyerhaeuser Co's (WY.N: Quote, Profile, Research) packaging business for $6 billion, making it North America's largest corrugated box maker.

The paper and packaging industry in North America and Europe has been consolidating and reducing production capacity in a bid to tackle soaring raw material costs and dwindling demand for paper due to the increasing influence of the Internet.

"This is an acquisition that is being made not for next quarter's earnings, but to position International Paper for 2010," said International Paper's chief executive, John Faraci, in an interview with Reuters.

International Paper has shed a large part of its non-core operations, while expanding the company through investments in South America and Eastern Europe.

"This deal is a win, win, win," said Longbow Research analyst Joshua Zaret, "It's a win for International Paper, a win for Weyerhaeuser and a win for the industry."

Memphis, Tennessee-based International Paper said that, because the transaction is a purchase of assets rather than of stock, the company will realize a tax benefit of about $1.4 billion. Taking this benefit into account, the net purchase price is about $4.6 billion.

In a note to clients, JPMorgan analyst Claudia Shank said the deal is about as good as Weyerhaeuser could have gotten, given the credit market conditions. But, cautioned that the company would be exposed to greater earnings volatility given its heightened exposure to wood products and homebuilding.

Shares of International Paper were down 8.5 percent to $29.51 in afternoon trade on the New York Stock Exchange, while those of Weyerhaeuser rose 0.7 percent to $62.41.