International Paper announced a plan to pursue a spin-off of the Company’s Printing Papers segment into a standalone, publicly traded company. The transaction will result in two streamlined, leading companies well positioned for long-term success. Upon completion of the transaction, International Paper and SpinCo will each be well positioned to create long-term value. The Company expects the separation to be tax-free for the Company’s shareowners for U.S. federal income tax purposes and plans to complete the spin-off late in the third quarter of 2021.
“We remain committed to producing sustainable products that people depend on every day and accelerating value creation for International Paper and our shareowners. This transaction represents a logical next step as we continue to build a better IP,” said Mark Sutton, Chairman and Chief Executive Officer. “International Paper will be a more-focused corrugated packaging and absorbent cellulose fibers company serving attractive segments, well-positioned to increase earnings and cash generation. I am confident that our plans will create value for our shareowners, employees, customers and other stakeholders.”
International Paper, an Advantaged Corrugated Packaging Company
International Paper intends to accelerate profitable growth in Industrial Packaging in North America and Europe, the Middle East and Africa and improve the returns of its Global Cellulose Fibers business. International Paper will continue its joint venture with Ilim Holdings in Russia.
The company intends to reduce its cost structure and accelerate earnings. International Paper will be a streamlined, more-agile organization and expects to generate an additional $350 – $400 million of annual earnings by the end of 2023, including $50 – $100 million in annual incremental earnings growth and $300 million in structural cost reductions. International Paper remains committed to its current capital allocation framework, which is the foundation for driving shareowner value.
SpinCo intends to raise debt in order to pay a dividend to International Paper, which will be used to pay down outstanding debt.
Following the completion of the transaction, International Paper expects to have approximately:
- $17 billion in sales, 85% in Industrial Packaging and 15% in Global Cellulose Fibers
- 20,000 customers
- 20 containerboard mills with 14.5 million tons of annual capacity
- 8 pulp mills with 3.2 million metric tons of annual capacity
- 220 converting facilities
- 350 packaging designers
- 3,500 packaging formers at customer locations
SpinCo, a Global Paper Company
Upon completion of the spin-off, Jean-Michel Ribiéras, currently senior vice president, Industrial Packaging, will become the chief executive officer of the new company, which we will refer to as SpinCo until the company establishes its own corporate identity. John V. Sims, currently senior vice president, Corporate Development, will serve as SpinCo’s chief financial officer. The remainder of the SpinCo leadership team and board of directors will be announced over the next several months.
SpinCo is expected to have talented teams, substantial scale, strong brands and low-cost assets to serve key geographies, including North America, Brazil and Europe. SpinCo’s anticipated capital structure is intended to allow strategic and operating flexibility and the potential to optimize the business.
As a standalone entity, in addition to a portfolio of leading brands, SpinCo will have approximately:
- $4 billion in sales
- 8 mills with 2.9 million metric tons of annual capacity and 0.4 million metric tons of coated paperboard capacity
Transaction DetailsThe transaction will be implemented through the distribution of SpinCo shares to International Paper shareowners. International Paper will retain up to 19.99% of the shares of SpinCo at the time of the separation, with the intent to monetize and provide additional proceeds to International Paper.
The proposed spin-off is subject to customary conditions, including final approval by the International Paper Board of Directors, receipt of a tax opinion and the filing and effectiveness of a Form 10 registration statement with the U.S. Securities and Exchange Commission. No assurance can be given regarding the form that a spin-off transaction may take or the specific terms or timing thereof, or that a spinoff will in fact occur.
Consistent with International Paper’s longstanding capital allocation policy of paying a competitive and sustainable dividend at 40 to 50% of free cash flow, International Paper expects to reduce its current dividend by 15 to 20% in proportion to the cash generated by SpinCo upon completion of the spin-off. SpinCo is not expected to initially pay a dividend and its dividend policy will be determined by its board of directors following the completion of the transaction.
International Paper expects to maintain a strong balance sheet and remains committed to its current investment grade credit rating with a stable outlook.