International Paper Co., the world’s largest forest products company, announced a far-reaching restructuring plan Tuesday that includes selling billions of dollars in businesses and millions of acres of forestland, closing mills and possibly relocating its headquarters.
The plan, aimed at reducing debt and boosting sluggish profits by concentrating on core businesses, would leave the Stamford-based company substantially smaller.
“It’s potentially almost half of the company’s earnings and cash flow,” said Steven Chercover, research analyst with D.A. Davidson and Co. in Portland, Ore. “International Paper will look very different. Clearly it’s an indication bigger is not always better.”
Job cuts are expected, but an exact number will not be known until the evaluation of the plan is complete, said Amy Sawyer, a company spokeswoman. The company has nearly 80,000 employees, including about 180 at its Stamford headquarters, she said.
“We’re looking at reducing the size of our company substantially,” Sawyer said. “I think the people impact will be commensurate with that.”
The plan includes the potential spin-off or sale of its beverage packaging, Kraft Papers and Arizona Chemical businesses. The company is evaluating the sale of segments or possibly all of its 6.8 million acres of U.S. forestlands.
The company, which warned last month that its second quarter profits would not meet Wall Street expectations, also said it will consider moving its Stamford headquarters to Memphis, Tenn., to streamline operations. Seven mills around the country will be downsized, closed or possibly sold.
“This is the biggest transformation we’ve experienced in several years,” said Sawyer.
The company said it will make portfolio changes to concentrate on its two key platform businesses — uncoated papers and industrial and consumer packaging. The reorganization is expected to produce annual cost savings of about $400 million over the next several years.
“We already have a strong global position in uncoated paper and have a growing worldwide platform in packaging. Our portfolio changes will allow us to better focus management attention and financial resources on these key businesses, which represent over 70 percent of our sales, and can achieve both cost-of-capital returns and profitable growth,” said Chairman and Chief Executive Officer John Faraci.
International Paper said it will evaluate options for its 50.5 percent stake in Carter Holt Harvey, and its coated and supercalendered papers business — including the coated groundwood mill and associated assets in Parana, Brazil. Also up for potential sale or spin-off is the company’s drink packaging business, including the Pine Bluff, Ark., mill, the Kraft Papers and Arizona Chemical businesses, and IP’s wood products operations.
The businesses that may be sold represent about 30 percent of 2004 sales and $925 million, or 40 percent, of operating profits. International Paper said it expects the evaluation of these operations to be complete by the first quarter of 2006, with the evaluation of Carter Holt Harvey expected to be complete by year-end 2005.
IP said proceeds from potential divestments could range between $8 billion and $10 billion, with about half of those proceeds slated to pay down debt. The company expects to use another 25 percent to 30 percent of the proceeds to return value to shareholders.
Chercover said the plan makes sense, but must be executed well.
“The hard part is now actually executing the asset sales,” Chercover said. “This is not a fire sale.”
The sale of the forestlands should generate plenty of interest in the hot real estate market, Chercover said. Potential buyers range from institutions such as Harvard University to wealthy individuals and companies such as Plum Creek Timber Co., he said.
“There’s a lot of money sitting on the sidelines looking to invest in timberlands,” Chercover said. “It’s definitely a sellers market.”
International Paper reported uncoated paper sales of about $5.8 billion in 2004. With 14 mills worldwide, the company produces cut-size paper, envelope paper, forms, specialty paper, and market and fluff pulp. Major brands include Hammermill, Postmark and Carolina.