International Paper of US buys majority stake in AP Paper

US-based International Paper Co, the world's largest paper company, has bought 53.5 per cent in Andhra Pradesh Paper Mills from its promoters, the Bangurs, in the first significant domestic acquisition by a foreign paper company. The deal is worth about Rs1,400 crore.

The NYSE-listed company will also make an open offer for the remaining 21.5 per cent promoter holding in the company for $104 million (Rs630 crore), and pay $62 million (Rs280 crore) as non-compete payment to the sellers. 

The deal has surprised the street because of its steep valuations. While the stock price of AP Paper on the Bombay Stock Exchange on Tuesday was Rs197, International Paper is paying about Rs542 per share, which is over two-and-a-half times the current price, for a controlling stake in the company. 

The share purchase and public tender are expected to be completed in the third quarter of 2011. 

"AP Paper is an excellent platform for International Paper to grow with the Indian paper and packaging markets. We believe that International Paper's global operations and technical expertise can accelerate that growth and create value for customers as well as International Paper and AP Paper shareholders," said John Faraci, chairman and chief executive officer of International Paper. 

AP Paper has two mills with a combined annual capacity of about 250,000 tonnes of uncoated freesheet paper. It has about 2,500 employees on its payroll who will continue to operate the business, supplemented by the International Paper leadership and technical resources.