US firm to acquire AP Paper Mill

International Paper will fork out euro 1,156 crore for a 53.5 per cent stake in Andhra Pradesh Paper Mills.

US-based paper and packaging company International Paper (IP) on Tuesday said it would acquire the control of Andhra Pradesh Paper Mills (APPM) for $361 million (euro 1,624 crore) to become the first global company with a direct presence in India’s fast-growing paper industry.

The New York Stock Exchange-listed company is buying 53.5 per cent of APPM’s outstanding shares from L N Bangur and related family members and affiliates for approximately $257 million (around euro 1,156 crore). In accordance to the Indian securities law, IP will launch a mandatory public tender offer to acquire up to an additional 21.5 per cent of the outstanding shares of APPM for approximately $104 million. It plans to acquire up to 75 per cent of APPM’s outstanding shares through these two transactions.

It will also make a $62-million (euro 279-crore) non-compete payment to the sellers.

With a combined capacity of about 250,000 tonnes, the Bombay Stock Exchange (BSE)-listed company, APPM, is one of the leading integrated paper manufacturers in the country. Once completed, the transaction will position IP as the first global paper and packaging company with a significant position in India’s fast growing economy.

“We have built a strong business in India, and the next phase of growth requires a different set of resources and capabilities. International Paper is the right company to take the business forward and deepen maturity of the sector in India,” L N Bangur, executive chairman of Bangur Group, said. IP will compete with the likes of BILT, TNPL and JK Paper.

IP has manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include uncoated papers and industrial and consumer packaging. Headquartered in Memphis, Tennessee, the company employs about 59,500 people and had net sales of $25 billion in 2010.

With the government thrust and budgetary allocation to education, India is one of the fastest growing paper markets. The domestic paper industry is estimated at around 10 million tonnes yearly. Of this, the writing paper segment accounts for 3.8 million tonnes and the packaging grade paper segment is estimated to be around 4.5 million tonnes, while the newsprint industry is about 1.7 million tonnes.

The domestic per capita annual consumption of paper is 9.2 kilogram (kg), much lower than many others developing economies. The per capita consumption in China and Indonesia is estimated at 42 kg and 23 kg, respectively. However, all segments of the industry are growing at eight to nine per cent. Paper companies have been able to pass on the price rise to consumers at regular intervals. The market has been able to absorb new capacity additions faster than expected.