CHH, IP consider Pine Bluff deal

Pulp & Paper, Dec 2006

International Paper (IP) appeared poised to sell one of three remaining units up for sale - beverage packaging - in a deal likely to be done with New Zealand's Carter Holt Harvey (CHH).

In October, IP officials told workers at the 645,000-tpy bleached board and coated groundwood paper mill in Pine Bluff, Ark., that IP had entered into an agreement to work on a deal to sell the mill and its other beverage packaging assets to a CHH affiliate, noting that the two sides had not agreed on a purchase price. IP was negotiating only with the Rank Group, which purchased IP's 50.5% share of CHH last year for $1.14 billion. The Rank Group sold the 687,000-acre CHH forestry estate to Hancock Timber Resource Group. Terms of the deal were not disclosed but estimates were as high as $1.5 billion for the estate.

If a deal is done for IP's beverage packaging unit, CHH enters two businesses it is not now in, beverage packaging and coated groundwood papers, and takes on the Pine Bluff mill in the U.S. where it has no assets and is far from its base in New Zealand and Australia.

The Pine Bluff mill has capacity to make 450,000 tpy of bleached beverage packaging board on the No. 2 paper machine and 195,000 tpy of coated groundwood on the No. 1 paper machine. Earlier this year, IP pulled the No. 1 coated groundwood machine at Pine Bluff from the company's coated and supercalendered paper unit that was for sale. The coated groundwood machine was then added to the beverage packaging unit.

IP sold the coated papers unit to the private equity firm Apollo Management for $1.4 billion and it was renamed Verso Paper. IP keeps a 10% interest hi Verso, which has four U.S. mills and 1.7 million tpy of capacity.

The Pine Bluff mill makes bleached board that is converted into about 25% to 33% of the world's gable-top beverage cartons for milk and juice products, contacts said. The Pine Bluff board is fully integrated into IP's 15 converting plants spread around the world that are in 10 countries. IP also has a beverage packaging equipment manufacturing facility in Cedar Rapids, Iowa.

The converting plants are in the U.S. and Canada (a total of seven), and also in El Salvador, Venezuela, the Dominican Republic, Taiwan, South Korea, China, Saudi Arabia, and Israel. IP also had a plant in Japan that a potential partner recently pulled out of since the plant was included in IP's plan to sell the beverage packaging business. The converting plants are in six U.S. states: California, Florida, Iowa, Massachusetts, Michigan, and North Carolina.

The Pine Bluff mill is within a mile of the Arkansas River that feeds down to the Mississippi River and the port at New Orleans. Pine Bluff is about 350 miles from New Orleans. The mill trucks board to Memphis where it is transported by rail to Long Beach, CaUf., for export to Asia. Also, the mill moves board to the port of Pine Bluff where it is shipped to New Orleans for export to Latin America and the Middle East.

In 2004, IP's beverage packaging unit generated $900 million in revenue and $40 million in operating profit. In July 2005, IP put the beverage packaging unit up for sale or spin-off as part of its massive "transformation" plan. The beverage packaging, Arizona Chemical, and wood products units are the remaining three that IP may sell or spin off.