International Paper said Monday it would buy Weyerhaeuser’s pulp business for $2.2 billion in a deal that will make it the world’s largest maker of fluff pulp.
Global demand for fluff pulp has been growing by roughly 3% to 4% in recent years. The material is used in diapers, tampons, and some medical bandages.
““Weyerhaeuser’s pulp business has an outstanding customer base served from low-cost, well-run assets that complement our existing system and offers significant synergy opportunities,” International Paper CEO Mark Sutton said in a news release.
“This transaction will position us as the premier global supplier of fluff pulp and will enhance our ability to generate additional free cash flow,” he added.
The company is already the world’s leading manufacturer of corrugated packaging. With the Weyerhaeuser deal, it will vault over Georgia-Pacific in the $6 billion fluff pulp market.
The deal includes five pulp mills in Mississippi, Georgia, North Carolina, and Alberta, Canada. According to The Wall Street Journal, International Paper is “making a big bet on rising global demand for disposable diapers and feminine products.”
Weyerhaeuser announced in November that it was exploring strategic alternatives for its cellulose fibers unit.
“This transaction delivers compelling value for Weyerhaeuser shareholders and further focuses our portfolio as we work to be the world’s premier timber, land, and forest products company,” Weyerhaeuser CEO Doyle R. Simons said.
In trading Monday, International Paper shares were up slightly at $43.44, while Weyerhaeuser rose 0.5% to $32.29.
Sutton told the WSJ that International Paper believes more consumers will be able to afford disposable diapers in the coming years in emerging markets, including in China, which recently ended its one-child policy for couples. At the same time, he added, purchases of diapers to combat adult incontinence should rise as populations grow older in many countries.
International Paper said it expects to incur a $300 million tax benefit related to the deal, making the net price $1.9 billion. It also forecasts annual cost savings of roughly $175 million by the end of 2018 from combining operations, a process that will result in one-time expenses of roughly $85 million.