😎 Summer Sale Exclusive - Up to 50% off AI-powered stock picks by InvestingProCLAIM SALE

Suzano eyes debt financing for potential International Paper deal - Jefferies

Published 06/09/2024, 04:35 PM
© Suzano

Investing.com - Brazilian pulp and paper giant Suzano (BCBA:SUZm) is reportedly looking to secure up to $19 billion in debt to potentially acquire International Paper (NYSE:IP), according to Bloomberg.

Analysts from Jefferies are predicting a potential cash offer for IP in the range of $54-57 per share, a figure that aligns with previous investor expectations. However, IP's board may value the company significantly higher.

Suzano's strategic move is geared towards creating a global industry leader with robust cash generation capabilities to expedite debt reduction. The company is also nearing the completion of a $4.2 billion project to boost its hardwood pulp capacity, which is expected to further enhance its free cash flow.

The reported $19 billion debt that Suzano aims to raise implies a potential acquisition price for IP in the $54-57 range. This would increase Suzano's projected leverage to 5.9 times its 2024 estimated earnings or 5.3 times its 2025 estimates, based on consensus predictions for Suzano and IP model forecasts.

Given IP shareholders' push for the company to divest its Cellulose business, it seems unlikely they would accept stock in a Brazilian pulp company. This is particularly true given Suzano's falling share price since expressing interest in IP.

Therefore, the news of Suzano's potential $19 billion debt aligns with the expectation that any offer below mid-$50s in cash would likely be rejected.

If the $50 per ton increase in linerboard holds, it could boost IP's EBITDA by approximately $550 million or around 26%. Using this framework, IP's shares could reach close to $56, even before considering any uplift from Silvernail's commercial and operational initiatives.

In an optimal scenario, shares of IP could approach $90 if IP manages to close the gap on revenue per ton and the $50 per ton increase sticks.

However, with mixed investor sentiments regarding the SMDS deal and a potential mid-$50s cash offer, deciding on an equity component becomes more challenging. Especially given that Suzano's stock has dropped by over 20% since initial reports of its interest in IP surfaced, while IP's stock has rallied.

Analysts at Jefferies have retained their Buy rating on International Paper (NYSE:IP) with a price target of 57.


Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.