International Paper to Sell its Canadian Pulp and Wood Business to West Fraser Timber
Press release from the issuing company
STAMFORD, Conn., July 21 -- International Paper today announced it has reached a definitive agreement to sell the capital stock of its Weldwood of Canada, Ltd. subsidiary to West Fraser Timber Co., Ltd. of Vancouver, Canada for approximately C. $1.26 billion (approximately U.S. $950 million), subject to certain adjustments at closing. The transaction is subject to completion of due diligence and financing to be completed by the end of September, as well as applicable regulatory approvals.
International Paper and West Fraser expect to complete the all-cash transaction in the fall, subject to various closing conditions.
"Weldwood is a solid company with outstanding, dedicated people and a proven track record of sustainable forest management. The sale of this business is about making choices regarding how we compete in our core businesses going forward," said International Paper Chairman and Chief Executive Officer John Faraci.
"The stand-alone assets in Canada are based on a different operating model than our businesses in the United States," said Faraci. "Our significant U.S. land base is highly integrated with our wood products operations because they use more than 75 percent of the saw logs we harvest from our own forestland, while Weldwood's wood fiber comes from harvesting rights on government-owned land. Likewise, Weldwood's two pulp mills in Canada are stand-alone facilities, while our U.S. based pulp business is supplied by mills that also produce other products. Weldwood's stand-alone pulp mills are a good fit with West Fraser's pulp business in Canada."
Based on current account balances and exchange rates, International Paper estimates that the cash proceeds at closing, after adjustments, will be approximately (U.S.) $900 million. As a result of net operating loss carryforwards, there should be no current cash outlay for taxes. International Paper estimates that the transaction will result in a one-time accounting loss, subject to certain adjustments, of approximately $425 million before taxes ($780 million after taxes or $1.60 per share) in the third quarter of 2004. The after-tax loss reflects a U.S. taxable gain on the transaction due to the low historic U.S. tax basis in Weldwood. Additionally, Weldwood's operating results will be reclassified as discontinued operations in International Paper's consolidated financial results, beginning in the third quarter of 2004.
"The timing is right for the sale of Weldwood, given the very strong wood products markets. This decision, along with the recent sale of Carter Holt Harvey's tissue business and the purchase of the Box USA corrugated packaging business, reflect choices that we believe will improve the focus of our portfolio, build stronger businesses and improve our future profitability," said Faraci.
Due to this recent period of strong lumber and plywood demand, Weldwood's sales in the first quarter of 2004 were approximately U.S. $225 million, contributing $0.04 per share to International Paper's earnings for the first quarter. In the second quarter of 2004, Weldwood's sales were approximately U.S. $260 million, contributing $0.08 per share to International Paper's earnings for the second quarter. Weldwood's full-year 2003 impact on IP's earnings was $0.02 per share.
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