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International Paper, Unisource in talks

by Lou Whiteman | Published April 23, 2013 at 9:26 AM

International Paper Co. said Monday, April 22, it is in talks about combining its Xpedx unit with private equity-backed Unisource Worldwide Inc. to create a larger, more diversified distributor of printing, packaging and facility supplies.

Memphis-based IP said that the discussions were initiated after Unisource approached it about a potential merger on April 19. The company said it is considering a so-called Reverse Morris Trust transaction that would have IP spin off Xpedx into a separate entity, collect a cash dividend from the new company, and then immediately merge the unit with Unisource in a deal that is intended to be tax-free to IP holders.

The ownership structure of the combined company and size of the dividend are still to be negotiated, as is the exact management structure of the combination. The parties have agreed to negotiate exclusively with each other for a period of time until a definitive agreement can be reached or the parties terminate the letter of intent, but warned there is no assurance a deal will be reached.

Xpedx generated an operating profit of $11 million in the fourth quarter of 2012 compared to $24 million a year prior due to higher operating expenses. For the year operating profit fell 17% to $71 million on sales of $6.04 billion. The parent company has been trying to restructure Xpedx's operations, taking pretax charges totaling $33 million since the fourth quarter of 2011 for costs associated with revamping the unit.

IP chairman and CEO John Faraci in a statement said that while Xpedx was not being shopped, a deal could work out well for both parties. "This is a unique opportunity for Xpedx and Unisource to create a new company that is stronger, more competitive and provide even greater value to customers," Faraci said. "Both companies are well-run, with a lot of talented employees and a good customer base."

Unisource Worldwide is the one-time distribution unit of what is now Georgia-Pacific LLC, which sold a majority interest in the business to Bain Capital Inc. in August 2002 for $1.4 billion. Georgia-Pacific, which was acquired by Koch Industries Inc. in 2005 for $21 billion, is still a minority shareholder in the business.

Bain managing director and Unisource director Seth Meisel in a statement said both Unisource and Xpedx are well run and that "a new company that unites their capabilities can create even more opportunities to deliver value and growth."

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International Paper, Unisource in talks

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