The rumored deal seems unusual and questionable, says Inderes analyst Antti Viljakainen.
On Tuesday, interesting information came from Metsäala. The news agency Reuters reports, citing its anonymous sources, that the world’s largest pulp producer, the Brazilian Suzanowould have approached the American International Paperia (IP) with a possible purchase offer in mind.
Reuters’ sources mention a possible purchase price of 15 billion dollars, i.e. around 14 billion euros, which is also close to Suzano’s own market value.
Fact
The world’s largest pulp producer
Suzano SA is a Brazilian paper and pulp producer.
The company was founded in 1924. The company is the world’s largest pulp producer and one of the largest paper producers in Latin America.
The company’s products include pulp, printing and writing paper, straws and paper cups, paper packaging, sanitary napkins and toilet paper.
According to information service Factset, Suzano’s turnover in 2023 was around 7,404 million euros. The operating profit was approximately EUR 2,278 million.
The number of personnel in 2023 was 20,907 (Source: Macrotrends).
The rumored price would be 42 dollars, or about 39 euros per share, and would be paid in cash. International Paper’s share is currently quoted at $38.84. The deal would be considerable in terms of its size. What would it mean from the point of view of Finnish forest companies?
Suzano is basically a pulp company, which has focused its business activities on South America in addition to the global pulp business.
International Paper, on the other hand, is mainly focused on North American corrugated cardboard and packaging, which is a very small market for all Finnish companies.
Inderes the next chief analyst for the forestry sector Antti Viljakainen states that Finnish forest companies mostly operate in Europe.
“The overlap between Suzano and IP is not particularly significant compared to Finnish companies,” Viljakainen estimates.
Finnish companies at UPM and Great Ensolla has a short fiber pulp business in South America. Stora Enso also has pulp in its portfolio, where International Paper operates globally. That’s where the overlaps end.
“Supposing that this deal were to materialize, I don’t see it having any revolutionary, quick effects in terms of Finnish forest companies,” Viljakainen says.
Another store shuffling the pack
According to Reuters’ sources, Suzano’s offer would be conditional on IP withdrawing the British one it previously told DS Smith -the acquisition of the packaging company, which should be carried out during the current year.
This deal, if realized, would have a consolidating effect on the market on a global scale, while the overlaps in Europe and North America are minimal.
According to Viljakainen, consolidation, or concentration, is fundamentally good for all market players in an industry like the forest industry, which is quite fragmented in structure.
Against this background, the cancellation of the deal would at least not have a positive effect on Stora Enso or Forest Board business prospects.
“There wouldn’t be any revolutionary effects in this case from the point of view of Finnish companies either.”
From Suzano’s point of view, the logic of a possible deal would be to expand the geographical portfolio and diversify the land risk.
Suzano has been exposed to China risk through the global pulp market, besides which South America plays a significant role in the company’s business.
Still early.
For now, it is pure speculation whether the rumored deal will materialize or not, states Inderes’ Antti Viljakainen.
PHOTO: Petteri Paalasmaa
Several open questions
With the rumored arrangement, Suzano would be able to expand the geographic weight on a significant scale to North America, i.e., in practice, spread the country risk.
At the same time, it would be a significant expansion for Suzano into the packaging business.
Even taking into account the possible benefits, according to Viljakainen’s assessment, especially from Suzano’s point of view, the rumored acquisition seems like a special and questionable arrangement.
First of all, the synergy between Suzano and IP is very low, as the product portfolios are very different.
In addition, the size category of the arrangement is very large in Suzano’s scale.
“The potential for value creation against this background seems questionable in my own eyes,” comments Viljakainen.
The stock market wasn’t enthusiastic about the deal planning from Suzano’s point of view either, as the company’s stock started a clear slide after the news.
“It remains to be seen whether Suzano will finally try this arrangement, and whether IP will accept it. I wouldn’t be surprised if this deal eventually falls through.”