Suzano approaches international document on bid, Reuters says

(Bloomberg) — Suzano SA, the world's largest pulp producer, approached International Paper Co. about a potential all-cash offer that values ​​the U.S. company at almost $15 billion, Reuters reported.

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The potential offer of $42 per share from the Brazilian producer was communicated verbally and a formal proposal could be submitted in the coming days, Reuters said, citing people familiar with the matter. Such an offer would be a 14% premium to International Papers' closing price on Monday.

The move comes less than a month after International Paper agreed to buy UK packaging rival DS Smith Plc for 5.8 billion ($7.3 billion). Suzano is in talks with potential lenders to finance its transaction, the terms of which would require International Paper to abandon its deal with DS Smith, according to Reuters.

International Paper is likely to reject Suzano's offer as insufficient, the report said.

Suzano said in a filing that there is no official document or celebration of any agreement from the company and that no decision has been made regarding a possible deal.

Memphis-based International Paper said in a statement Tuesday that it had no comment on rumors or speculation. The company said it is focused on completing its combination with DS Smith, which offers a unique and highly compelling opportunity to create significant shareholder value on top of its core plan.

The paper and packaging sector is in the consolidation phase. Last year, Smurfit Kappa Group Plc agreed to buy WestRock Co. to create an Irish-American powerhouse.

The industry benefited from a surge in demand for deliveries during the pandemic as consumers under lockdown ordered more goods online. Since then, it has weathered a slowdown as e-commerce returned to more normal levels, weighing on gains across the industry. Profits at International Paper shrank to their lowest level in more than a decade last year.

A bid for International Paper would be the latest attempt by a foreign company to capture a US giant, following the controversial takeover by Nippon Steel Corp. of United States Steel Corp. International Paper was founded more than a century ago in 1898 through the combination of 17 pulp and paper mills.

It would also be the biggest cross-border acquisition by a Brazilian company since Vale SA bought Inco Ltd. in 2007 for about 17 billion dollars.

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For Suzano, the move would mark a first step towards a long-awaited internationalization push and allow it to diversify its packaging operations and enter the US market. The company controls almost a third of global capacity for hardwood pulp, a key ingredient in tissue and writing paper that is also used in some absorbent products.

Suzano is currently undergoing a change in management, with long-time chief executive Walter Schalka to be replaced by Joao Fernandez de Abreu.

While International Paper trades at a higher price-to-earnings ratio than Suzano, the Brazilian company has had a higher market value than its US rival for nearly a year.

Shares of International Paper rose as much as 12% in New York trading, the biggest intraday gain since March 2020, before closing up 5.2%. Suzano ended 12% lower in Sao Paulo in its biggest loss in more than four years. DS Smith fell sharply in London trading and then erased most of the decline.

Suzanos dollar bonds fell along the curve following the news. Notes due 2029 fell as much as 4.7 cents on the dollar to 98.8 cents on Tuesday, according to Trace data.

Everyone was waiting to hear how Suzano is planning to finance the acquisition and how the rating agencies will react, said Roger Horn, senior emerging markets strategist at Mariva Capital Markets. At first glance, it doesn't make much sense, as management has long emphasized that it benefits from highly competitive cash costs in Brazil, especially compared to its North American peers.

Suzano's pulp business is theoretically more cyclical than its IP packaging business, so one could argue that this potential combination would help Suzano not only increase scale but also reduce earnings volatility, analysts said. Barclays including Gaurav Jain in a note to clients.

However, the deal would significantly worsen Suzano's debt metrics, making it unviable. If anything, we believe this could make IP even more determined to complete the DS Smith transaction, the analysts wrote.

–With the help of Vincius Andrade.

(Updates with Suzano's comment on the fifth paragraph)

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