International Paper Co., the world’s biggest producer of pulp and paper, is selling a majority stake in its Indian unit to West Coast Paper Mills Ltd for at least Rs 557 crore ($80 million), bidding adieu to the country eight years after becoming the only top-league paper company ever to enter India.
West Coast Paper, which is part of SK Bangur Group, will pick up a stake of at least 51% in International Paper APPM Ltd (IPAL) from the American parent and depending on the success of the open offer to the public shareholders may buy as much as 60%, as per a regulatory disclosure.
Interestingly, the deal is at a sharp discount to the market price of IPAL. Indeed, the open offer to the public is at a premium to the ruling market price of IPAL and given the strategic deal valuation may see high participation from the public (see our in-depth analysis on the valuation here).
West Coast is buying bulk of the shares held by the American parent at Rs 275 each while it has made the open offer at Rs 450 a share.
The company’s share price has ranged between Rs 315 to Rs 582 a share in the past one year and has been hovering around Rs 400-450 in the last 30 days. It ended at Rs 424.5 a share on BSE in a weak Mumbai market on Friday.
West Coast could end up shelling as much as Rs 448 crore to buy up to 25% owned by the public.
Since promoters can have a maximum of a 75% stake in public companies, if the open offer is fully successful, West Coast may move to merge IPAL with itself or delist the company to comply with listing norms.
In 2011, the NYSE-listed International Paper had acquired IPAL from its promoter LN Bangur Group—which operates independently of SK Bangur group—for approximately Rs 1,900 crore ($388 million then) in the first big-ticket inbound deal by a large paper company. The domestic paper industry has largely stayed the preserve of local companies with some large firms like Ballarpur Industries Ltd (BILT) sinking over the years because of financial troubles.
This means, International Paper Co will take a big write-down on what it paid to get access to the world’s second fastest growing major economy. Indian paper industry is small even compared to regional markets in Asia.
International Paper had acquired what was then the fifth-largest paper company in the country under Andhra Pradesh Paper Mills in 2011.
This deal had come 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 in one of the rare deals of the time when most Indian firms were selling out to MNCs. Although some other large international paper firms have a presence in the country, it is mostly limited to being sales outposts for imported products.