Suzano and International Paper both acknowledged rumors of a pending transaction for the first time this week, but made clear that no agreement is in place for any potential deal.
Rumors have been swirling since Reuters published an anonymously-sourced May 7 story that said the Brazil-based company was interested in acquiring International Paper. The story noted this would be contingent on IP abandoning its plan to acquire U.K.-based DS Smith.
Earlier this week, Reuters reported that Suzano could be prepared to increase its offer. Suzano’s share prices fluctuated in the wake of that story, prompting regulators to ask the company for an explanation. This led to a May 22 securities filing from Suzano, marking its first official confirmation of a potential transaction.
“[C]onsidering the occurrence of atypical fluctuations, the company confirms its interest in International Paper assets," Chief Financial and Investor Relations Officer Marcelo Feriozzi Bacci said in the filing. "However, it reiterates that, up to the moment, there is no agreement, binding or otherwise, nor any decision or deliberation by the company’s management regarding a potential operation that meets the minimum materiality required to qualify as a material fact."
Also Wednesday, new IP CEO Andy Silvernail participated in a call with sell-side analysts to discuss his priorities for the company. During that discussion, according to a report from Truist Securities that was corroborated by a report from RBC Capital Markets, “Mr. Silvernail noted that IP is not actively engaged with Suzano” and said the company remained focused on the DS Smith deal.
IP hadn’t previously acknowledged the deal, beyond a May 7 statement that said it had “no comment on rumors or speculation contained in recent media reports.”
Michael Roxland, senior paper and packaging analyst at Truist Securities, said in an initial Wednesday note to investors that the wording in Suzano’s filing “seems to suggest that Suzano could also be evaluating a purchase of individual assets.” He speculated this could be IP’s Global Cellulose Fibers division, since Suzano already processes fluff pulp and is looking to increase production.
The company’s Industrial Packaging division, which includes boxes and a range of products, comprises the majority of IP’s overall sales. Executives have been focused on improving margins in that area through multiple strategies, including price increases and certain mill closures.
The GCF business focuses on absorbent and specialty products such as baby diapers, “feminine care,” adult incontinence and wipes. Suzano offers products in many of these markets, including what it describes as “the world’s first eucalyptus fluff pulp.”
During Q1, the GCF business accounted for $704 million of IP’s total $4.6 billion in net sales. The division reported a $47 million operating loss in Q1, and $17 million for 2023. IP has previously said it is focused on optimizing costs, including via machine closures, and further aligning with key customers. The company’s GCF assets are targeted to produce an estimated 2.8 million metric tons of fluff and specialty material per year.
Silvernail said during the call with analysts that any portion of IP could be up for potential evaluation, according to Roxland.
“While he has thus far primarily concentrated his efforts on Industrial Packaging, Mr. Silvernail recognizes that there is work to be done in GCF with the company prepared to make a decision on whether GCF remains a part of the portfolio sometime within the next 6-12 months,” he wrote.
The company previously said it aims to close the DS Smith transaction by Q4.
IP did not respond to a request for comment on Suzano or a potential evaluation of the GCF business.
