International Paper to spin off paper business in 2021
International Paper plans to spin off its printing papers business, the Memphis-based packaging, pulp and paper producer announced Thursday.
The spinoff, expected to be completed in the third quarter of 2021, would result in a standalone, publicly traded printing papers company.
“We remain committed to producing sustainable products that people depend on every day and accelerating value creation for International Paper and our shareowners," said Mark Sutton, chairman and chief executive officer, in a statement. "This transaction represents a logical next step as we continue to build a better IP."
International Paper executives told Wall Street analysts managers of the new firm would decide where to locate
the headquarters. Executives said the location would likely be in the U.S.
In a news release, International Paper said it aims to “reduce its cost structure and accelerate earnings,” with the company becoming more streamlined after the spinoff. It said it expects to generate an additional $350 million to $400 million in annual earnings by the end of 2023, with $300 million of that coming from “structural cost reductions.”
“International Paper will be a morefocused corrugated packaging and absorbent cellulose fibers company serving attractive segments, well-positioned to increase earnings and cash generation," Sutton said. "I am confident that our plans will create value for our shareowners, employees, customers and other stakeholders.”
The transaction will occur through the distribution of Spinco shares to International Paper shareowners, per the news release. International Paper will keep up to 19.99% of Spinco’s shares at the time of the spinoff. The spinoff is subject to approval from International Paper’s Board of Directors, along with other customary closing conditions.
International Paper projects it will have $17 billion in sales (85% in its industrial packaging segment, 15% in global cellulose fibers) after the transaction is complete.
International Paper is referring to the future standalone company as Spinco until it establishes its own identity. International Paper projects Spinco will have $4 billion in sales.
“Spinco is expected to have talented teams, substantial scale, strong brands and low-cost assets to serve key geographies, including North America, Brazil and Europe,” International Paper said.
Jean-michel Ribiéras, International Paper’s senior vice president of Industrial Packaging, will become the global paper company’s CEO.
In a conference call with Wall Street analysts on Thursday, IP executives were asked why they could not improve the corrugated packaging and paper businesses within International Paper without having to spin off the paper side. Executives said the separation would help IP focus on packaging, reduce the complexity of management and let Spinco focus on improving its paper business.
The paper side of the industry is seen as facing headwinds around the world as digital technology displaces printed products. In the last quarter, International Paper reported after-tax income slumped about 40% to $204 million, with much of the drop related to pandemic-related reductions.
IP executives said the spinoff relates less to the one-time performance in the last quarter and more on the need to address head on the changes in front of the paper industry. The standalone company will operate eight paper mills including three in Brazil, one each in France, Poland and Russia, and two in the United States at Ticonderoga, New York, and Eastover, South Carolina.
In a biography of Riberas provided to investors more than a year ago, International Paper reported he joined the company in 1993 in a sales management position at a specialty mill in France. He has held various leadership positions with the company over the years, assuming his current senior vice president role in 2018.