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International Paper to Reorganize; Company to Dramatically Downsize in Effort to Boost Profits, Reduce Debt

Posted on: Wednesday, 20 July 2005, 18:00 CDT

STAMFORD, Conn. -- International Paper Co. announced a sweeping restructuring plan Tuesday that will dramatically shrink the world's largest paper company in an effort to boost profits and cut debt by focusing on core businesses.

The strategy involves selling $8 billion to $10 billion in assets, including millions of acres of forestland around the country, closing mills and possibly relocating its headquarters. Substantial job cuts are expected.

"It's potentially almost half of the company's earnings and cash flow," said Steven Chercover, research analyst with D.A. Davidson and Co. in Portland. "International Paper will look very different. Clearly it's an indication bigger is not always better."

The move is the latest effort to cope with weak demand and higher costs in the paper industry. IP and other companies have shut plants, cut thousands of jobs, sold timberlands and other assets and consolidated in recent years.

"This isn't about being big. It's about being successful," John Faraci, the company's chief executive, said in a conference call with analysts. "We're not waiting for the market cycle to improve."

Faraci said earnings per share should be 30 percent higher by 2007 as a result of the strategy. International Paper had a loss of $35 million, or 7 cents per share, last year and warned last month that its second-quarter profits would not meet Wall Street expectations.

The businesses that may be sold represent about 30 percent of 2004 sales and $925 million, or 40 percent, of operating profits.

Shares of International Paper rose $2.77, or 9 percent, to $33.43 in afternoon trading on the New York Stock Exchange, where they have traded in a 52-week range of $29.76 to $43.66.

Number of layoffs unknown

The number of job cuts will not be known until the company finishes evaluating the plan, said spokeswoman Amy Sawyer. The company has nearly 80,000 employees, including 134 at its Stamford headquarters, she said.

"We're looking at reducing the size of our company substantially," Sawyer said. "I think the people impact will be commensurate with that."

The plan includes the potential spin-off or sale of its beverage packaging, Kraft Papers, wood products and Arizona Chemical businesses. The company is evaluating the sale of segments or possibly all of its 6.8 million acres of U.S. forestlands.

The company also said it will consider moving its Stamford headquarters to Memphis, Tenn., to streamline operations. Seven mills around the country will be downsized, closed or possibly sold.

The company said it will make portfolio changes to concentrate on its two key platform businesses -- uncoated papers and industrial and consumer packaging. Uncoated papers is in a strong position to grow from demand in Eastern Europe, Latin America and Asia, while packaging was strengthened with the acquisition of Box USA, company officials said.

"We already have a strong global position in uncoated paper and have a growing worldwide platform in packaging. Our portfolio changes will allow us to better focus management attention and financial resources on these key businesses, which represent over 70 percent of our sales, and can achieve both cost-of-capital returns and profitable growth," Faraci said.

The reorganization is expected to produce annual cost savings of about $400 million over the next several years.

International Paper reported uncoated paper sales of about $5.8 billion in 2004. With 14 mills worldwide, the company produces cut- size paper, envelope paper, forms, specialty paper, and market and fluff pulp. Major brands include Hammermill, Postmark and Carolina.

Source: Columbian

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