Paper, International Paper buying Warehouser's pulp business price tag two point to billion dollars. Here to tell us more about it, as Chip Dylan, he's a partner and head of Global Paper and Packaging Practice at Vertical Research Partners. Chip Dlon, thank you very much for joining us. Good to join you, PIM.
All right, So why is International Paper making this purchase? Well, you know, International Papers sort of boxed in part in the pun in terms of its ability to grow, given that they are the largest in corrugated boxes in the US, and I don't think that the antitrust authorities would let them grow bigger. This is a specialty niche business. The pulp that they are buying is used in high end consumer products that are used for absorbency, such as disposable diapers,
feminine care products, and adult and continent products. And so I think it's a very strong market that's growing pretty rapidly around the world, and so it's an attractive avenue for them. Now, this is called fluff pulp. Correct, yes,
fluff pulp. So what will be left at Warehouser after this purchase, Well, Warehouser will essentially be out of the paper and pulp manufacturing side of the business, and what you have with Warehouser is the largest tree owner or timberland owner UH in the United States, coupled with some wood products manufacturing facilities that use the timber from those lands.
So Warehouser will in essence become more of a pure play and for international paper this deal will be what a creative to earnings well, you know, pim truth be told. Just about anything you do this day with the money for nothing in the sense of low interest rates is going to prove a creative. But I would say that even discounting that, it is a very attractive deal for
international paper. When you look at the fluff market, it's a very technically demanding UH product in fact us to the fluff that was made before the nineteen nineties was made by Procter and Gamble and Kimberly Clark, which is, you know, are very high end consumer products companies, and they only in the last twenty five years have if in essence, sold off those operations for others to make the fluff pulp. So there's really only three or four
major players. It's not a very wildly swinging commodity price type product. And so it gives steady, solid returns and that's more what i P is seeking to be. You'll notice that in the corrugated box business they've seen their returns get much more stable in the last seven eight years as they and others have consolidated that business. And who are there big competitors we talked in Georgia Pacific.
Georgia Pacific, which you know is privately owned UH Warehouser course, will be leaving and dom Tar is the other major buyer. And I will add this, I don't think the government necessarily will let i P buy all of the Warehouser assets without some divestitures, but I do think they're going to allow them. And if there are divestitures to them, I think Domtar is the most likely buyer of the mill or two that would be required to be divested and and so it should be a win win win
all around. And what about the actual paper mills, what are they buying? Where are they located? Well, these mills are located, uh, basically in the southeastern United States. There's
one that's up in Canada. But what's interesting is is that i P has two mills already in the Fluff area that are located near one of Domtar's mills, So it wouldn't surprise me if i P actually was if you will upgrading buying the Warehouser assets which used to be owned by Procture and Gamble, and and and maybe it would be open to selling one or both of its own mills if it's required, and we're not trying
to say they will be required. I would also add I think that i P and Domtar are going to look better in this than Warehouser necessarily will, because they have a pretty stiff tax bill on the sale of these mills. Chip, just last point to you. International Paper the stock pays about a four percent dividend, It's up more than fifteen percent so far this year, trades at forty dollars to share. Do you recommend people buying it? Absolutely? In fact, both i P and Domtar are are stocks
we would recommend people buying upside. Thank you very much, Chip Dylan. He is a partner head of Global Paper and Packaging Practice at Vertical Research Partners. Shares of International Paper up fifteen cents right now forty three dollars and forty three cents