A potential Brazilian acquirer is walking away from its bid for International Paper(NYSE: IP) after the target rebuffed its overtures.
Investors hoping for a big premium are disappointed, sending 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 buy British rival DS Smith. But in early May, IP switched from hunter to hunted when news broke that Suzano of Brazil was weighing an offer for the U.S.-based company.
On Wednesday, Suzano said it has terminated its effort to acquire International Paper after IP was unwilling to engage. Suzano said it walked away after IP was unmoved by the highest price it was willing to pay.
Suzano was reportedly willing to pay as much as $15 billion in cash for IP.
Enthusiasm for the potential deal was tempered by concerns that the United States government would be reluctant to allow a foreign acquisition of one of its natural resources titans. There was also no public indication that any large International Paper shareholders were pressuring IP management to negotiate.
Is International Paper a buy?
As I said when the stock initially spiked due to takeover rumors, it is dangerous to buy on deal talk. A quick drop is no surprise now that Suzano has walked away. But not all is lost for International Paper as it charts its course as an independent.
The company is in the early stages of an effort to make its operations more efficient and potentially divest lower-margin divisions like its cellulose operation, which could fetch as much as $2 billion in a sale. There is also the potential for upside assuming the DS Smith deal closes and International Paper can integrate it successfully.
None of this is going to provide the instant boost a takeover would have provided, but there is every reason to believe patient investors can still be rewarded by buying IP stock.
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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.
