Weyerhaeuser sells containerboard unit for $6 billion

MEMPHIS, Tenn. — Weyerhaeuser is selling its containerboard unit to International Paper for $6 billion in cash.

The sale includes nine containerboard mills, 72 packaging locations, 10 specialty-packaging plants, four kraft bag and sack locations and 19 recycling plants.

About 14,300 employees work at the containerboard packaging and recycling business.

Federal Way-based Weyerhaeuser said it plans to use a good part of the sale's proceeds to pay down debt. The company had been considering a sale of the division as it looked to focus on its timber, wood-products and real-estate operations.

International Paper, a global supplier of packaging materials and uncoated paper, said it expects to complete the deal in the third quarter and that it will add to earnings in 2009.

The Memphis, Tenn., company said it will pay for the purchase through increased debt.

International Paper has greatly cut its debt and improved cash flow since launching a major reorganization in 2005 to move from forest products and focus on producing uncoated paper and containerboard.

"This is just the exact reason we paid down $7 billion of debt a couple of years ago ... to keep the financial flexibility so if something came along that was an opportunity for International Paper we could take advantage of it," said John Faraci, International Paper's chairman and chief executive.

The planned purchase, which would make International Paper the largest containerboard producer in North America with a 29 percent market share, drew cautious reactions from market analysts.

The increased debt led Moody's Investors Service to revise its outlook on International Paper to "negative" from "stable."

Goldman Sachs downgraded International Paper to "neutral" from "buy," saying its analysts "view the transaction as relatively expensive and a strategic negative for IP" though they remain positive on the longer-term prospects for the company.

Credit Suisse considered the agreement "good for both in the short run," while noting International Paper is the only containerboard producer "with the balance sheet to take on $6 billion in debt."

Weyerhaeuser shares rose $1.09, or 1.8 percent, to $63.06 Monday, while International Paper shares fell $2.79, or 8.7 percent, to $29.47.