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International Paper's Hostile Acquisition of Temple-Inland Makes Strategic Sense

We believe the company could squeeze $200 million-$300 million of cost synergies from a combined organization.

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On Monday,  International Paper (IP) made a hostile offer to acquire  Temple-Inland (TIN) for $30.60 per share. The valuation is roughly 8 times enterprise value to our estimated 2011 EBITDA, which is roughly in line with  Silgan's (SLGN) recent acquisition of Graham Packaging (GRM). Should IP be successful in acquiring Temple-Inland, we think it will be able to reap significant cost synergies. However, we believe Temple-Inland may put up a fight and regulators will probably take a close look, which leads to uncertain timing around the proposed transaction.

Subsequent to IP's press release notifying investors of the bid, Temple-Inland rejected the unsolicited takeover proposal via a press release of its own. While we believe a merger of North America's largest and third-largest corrugated packaging companies is a strategically sound move that should generate significant synergies, IP may be forced raise its bid and may run into antitrust issues, since the combined firm will control almost 40% of North America's containerboard supply.

Thomas Mullarkey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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