The world’s largest paper company International Paper has completed the acquisition of 75 per cent stake in Andhra Pradesh Paper Mills (APPM) for around $388 million (Rs 1,900 crore), making it the first global paper and packaging company with a significant position in India's fast-growing economy.
NYSE-listed International Paper acquired 53.5 per cent of APPM from its promoters, led by L N Bangur, for approximately $226 million in cash. These sellers have also received a non-compete fee of $57 million. In addition, International Paper acquired another 21.5 per cent of APPM in the public offer, since APPM is a public-listed company. The paper giant shelled out around $105 million in the offer that closed last week.
Incidentally, International Paper had struck the deal when the Indian currency was much stronger and that would have cost the US firm around $423 million (including the non-compete fee) for acquiring 75 per cent stake. So the currency exchange has shaved off around $35 million from the original deal value in dollar terms while the transaction size remains the same in Indian currency, according to VCCircle estimates.
Paul Brown, president of IP India, has become executive chairman of the APPM board of directors.
"As we complete this phase of the process and move into majority ownership, International Paper is well-positioned to help serve a rapidly growing Indian market,” said John Faraci, International Paper chairman and CEO.
APPM is the country’s fifth largest paper producer by revenues, behind Ballarpur Industries, JK Paper, Tamil Nadu Newsprint and the paper division of diversified firm ITC. It operates two mills with a combined annual capacity of 250,000 tonnes of uncoated freesheet paper. The existing management team and 2,500 employees of APPM will continue to operate the business.
APPM counts among its investors International Finance Corporation that invested way back in 2004-2005. Initially IFC held as much as 9.6 per cent stake in APPM and having diluted its stake down the years, owned around 3.36 per cent in the company as of December 31, 2010. It is not clear if IFC has exited its investment in the open offer.
This deal comes just 10 years after Sinar Mas, an indirect subsidiary of Asia Pulp and Paper Co Ltd and the only large international company to have a significant presence in India, was acquired by Ballarpur Industries in one of the rare deals of the time when most Indian firms were selling out to MNCs. Although some other large international firms have a presence in the country, it is mostly limited to being sales outposts for imported products.
LN Bangur Group also includes companies such as textile firm Maharaja Shree Umaid Mills Ltd and Peria Karamalai Tea and Produce Company.
The last significant domestic deal in the paper industry involved the acquisition of Rama Newsprint by another Bangur Group (led by SK Bangur) firm West Coast Paper. Rama Newsprint, which remains a separate listed firm along with West Coast Paper, makes SK Bangur a larger firm compared to APPM.
International Paper To Buy 53.5% In AP Paper Mills For $257M