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Industry News RSS Feed for Gypsum Today Industry News by the Drake Group


02.20.08

KOCH, GP AND TEMPLE-INLAND IN THE NEWS

Temple-Inland frontrunner in bid for Weyerhaeuser’s containerboard business, but Georgia-Pacific could have Temple-Inland in its sights

Georgia-Pacific may seek to acquire Temple-Inland, a leading contender to buy Weyerhaeuser Company’s containerboard business, sources told dealReporter. The sources, who are familiar with the process, also said third-round bids for Weyerhaeuser’s containerboard business are expected within the next two weeks.

Atlanta-based Georgia-Pacific (GP), a leading manufacturer and marketer of building products, and a subsidiary of Koch Industries, could seek to acquire Temple-Inland, whether the company is victorious in its bid or not, the sources said.

dealReporter reported Monday that three bidders were known to be vying for Weyerhaeuser’s containerboard asset, which could yield anywhere between USD 4.5bn to USD 5.5bn: Temple-Inland, International Paper Company (IP) and Smurfit-Stone. IP is also considered a likely frontrunner, noted the sources.

Temple’s financing, as with Smurfit, will be structured in the form of a Reverse Morris Trust, while IP would use cash to purchase Weyerhaeuser’s containerboard division. But one of the sources familiar with the process said Smurfit is having a rough time receiving solid commitments due to a combination of factors including Smurfit’s own asset base, the credit markets, and general attitudes toward lending to any company exposed to construction and building.

A second source agreed, saying that raising money for a company with a low corporate credit rating such with Smurfit (’B+’. S&P) would be cumbersome in the current financing markets. ”Smurfit’s ability to raise debt financing [for Weyerhaeuser’s containerboard business] is questionable,” the source said.

Temple-Inland entered the bidding process at a late stage, having about 30 to 40 days to conduct due diligence, the sources said.

Although GP has typically shied away from hostile tactics, the first source said the building products manufacturer could be waiting to see how Weyerhaeuser’s process plays itself out. He commented that GP is a very careful and disciplined buyer and does not like ”locking horns” by engaging in a competitive situation.

”If they wait for the dust to settle they can go in and pick on leftovers,” this source said, adding that it is well know that GP wants to buy in this sector, and buy big. Such names could include Temple-Inland and/or Smurfit, said the first and second sources.

With respect to Temple-Inland, the first source said the company is performing well, is fully out of restructuring and is delivering strong results. He said if GP waits any longer, Temple will start trading at high multiples relative to the sector. The effect of trio-polo separation is not fully reflected in the price yet, he added. ”It is not unlikely that [GP] will wait to see if Temple takes a hit on this deal and then move in,” he said.

Therefore, Smurfit or Temple-Inland, if either announces a deal with Weyerhaeuser, could be putting themselves in play, and this is likely being factored into their decisions, the second source said. Although this source said he did not believe Smurfit wanted to sell, he said there is a question mark over Temple-Inland.

A third source familiar with the situation said although he was uncertain as to whether GP would attempt to buy Temple-Inland, he added it certainly would make sense for them to do it. ”Who knows whether they will do it on a hostile basis or not,” he remarked. He pointed out, however, that it is uncommon for Koch to involve itself in hostile situations.

But some sources are starting to question whether a sale of Weyerhaeuser’s containerboard asset will be concluded by the end of the month. Although at least three sources familiar with the process said it was their understanding that a deal is plausible within that time frame, a separate source said there is the possibility that Weyerhaeuser could postpone making a decision.

The latter source said that, with financial markets remaining hazy and a number of companies generally postponing making decisions on transactions, there is a chance Weyerhaeuser will question whether this is the right time to be selling an asset.

Conversely, the second source said it was his belief Weyerhaeuser would definitely sell the division. He said the company has been running the process for months and has a general sense of the asset’s value. ”If they were going to call off the process, they would have probably called it off by now. My guess is they are willing to do a deal at a level that they may get a bid,” this source said.

The first source said that, seeing where bidders are with due diligence and management presentations, the final round will be called next week or the week after.

The name of another potential bidder that has surfaced recently is Madison Dearborn Partners (MDP), which already owns Graphic Packaging Corporation in its basic industries portfolio of companies. The first source said he had heard MDP had been doing its own due diligence over the past few months. He said it is unclear, however, whether the private equity firm is looking to partner up with one of the other three contenders, particularly Temple-Inland, which is thought to be looking to purchase more then one business at Weyerhaeuser or go it alone.

A source close to MDP did not think the level of interest was that significant, as the investment has not reached ”firm level” yet, which he said is usually reached early on.

And with IP having the only cash offer on the table, a fourth source familiar with the situation said another big question is whether the bidder will overpay for the asset to compensate for its offer.

”They may be in a sweet spot because, with difficult credit markets, neither MDP nor Smurfit Stone can come forward with an aggressive financing proposal,” he said. This leaves the player with the strongest balance sheet the likely winner, and the source said IP is really the only one that has the wherewithal to get a deal done.

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