International Paper agrees to merge xpedx distribution business with Unisource Worldwide, Inc.

MEMPHIS, Tenn., Jan. 28, 2014 /PRNewswire/ -- International Paper (NYSE:IP) today announced that distribution solutions businesses xpedx and Unisource Worldwide, Inc. will merge under the terms of a definitive agreement that will result in the creation of a new publicly traded company. The agreements providing for the combination of the two businesses were signed by International Paper, parent company of xpedx, and by UWW Holdings LLC, the holding company that owns Unisource and is owned by an affiliate of Bain Capital and by Georgia-Pacific, as well as certain of their affiliates.

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Upon the expected completion of the merger in mid-2014, which is subject to certain closing conditions, the new company will have projected annual revenue in the range of $9 billion to $10 billion, and will have about 9,500 team members across more than 170 distribution centers in North America.

"This transaction provides excellent value for International Paper shareholders and is a unique opportunity for xpedx and Unisource to create a new company that is stronger, more competitive and able to provide even greater value to customers," said John Faraci, chairman and chief executive officer of International Paper. "We anticipate the new company will generate synergies of about $200 million."

Mary Laschinger, president, xpedx, and senior vice president, International Paper, said, "We're bringing together two well established distribution businesses to create a new company with the financial stability and strategic focus to strengthen and grow our core businesses. Combined, the new company will be even better positioned to provide the products, services and ideas to support our customers' businesses."

Transaction Details

The transaction will be accomplished through a Reverse Morris Trust structure.  International Paper will indirectly contribute the assets of xpedx to a newly formed wholly owned subsidiary, xpedx Holding Company, in exchange for the stock of the subsidiary, a cash payment of approximately $400 million expected to be financed with new debt in the new company's capital structure, as well as the potential for an additional cash payment pursuant to an "earn-out" provision described below.  International Paper will distribute shares of the new company to International Paper shareholders on a pro rata basis in a manner intended to be tax-free to International Paper and its shareholders. 

Following the spinoff of the new company to International Paper shareholders, Unisource will immediately merge with and into the new company. In connection with the merger, the shares of Unisource will be converted into a number of shares of the new company such that, following the merger, approximately 51 percent of the shares of the new public company will be owned by International Paper shareholders, with the remaining approximately 49 percent of shares held by UWW Holdings. The shares of the new company to be received by International Paper shareholders in the distribution will be registered with the Securities and Exchange Commission. The new company intends to apply to list its shares for trading on the New York Stock Exchange. UWW Holdings may request to register its shares of the new company with the SEC for resale beginning 180 days following the closing of the merger, pursuant to the terms of a Registration Rights Agreement to be entered into between the new company and UWW Holdings.

In connection with the spinoff, the new company will prepare and file with the SEC a registration statement registering the shares to be distributed to International Paper's stockholders and containing information about the spinoff and the merger. The company expects to file the initial registration statement to start the SEC review process in the coming weeks.

To finance the cash payment to International Paper and refinance existing debt of Unisource, the new company has entered into a commitment with three banks for $1.4 billion of asset-backed financing. The new company's target debt-to-EBITDA ratio is expected to be in the range of 4-5. The new company will be well positioned to generate solid cash flow for operations and reinvestment in the business while adequately servicing its debt.

In the sixth year following closing, International Paper will have the right to receive a one-time payment of up to $100 million in cash as an "earn-out." The earn-out amount will be calculated based upon the extent to which actual EBITDA of the new company in the third, fourth and fifth years following the closing exceed an agreed-upon target. 

The new company's executive offices will be located in the greater Atlanta area. In addition, the new company will retain the two existing operational headquarters of the legacy companies in Loveland, Ohio, and Norcross, Ga.

Leadership & Governance

Mary Laschinger will be the chief executive officer of the new company and chairman of its board of directors. Allan Dragone, currently president and CEO, Unisource Worldwide, will serve as a director of the new company and will advise on integration activities. The other directors will be:

• Lead Director William E. Mitchell, retired chairman and chief executive officer, Arrow Electronics, Inc. and founder of Sequel Capital Management, LLC
• Daniel T. Henry, retired executive vice president and chief financial officer, American Express
• Tracy Leinbach, retired executive vice president and CFO, Ryder System, Inc.
• John Zillmer, retired chairman, president and chief executive officer, Univar, Inc.
• Michael Muldowney, former CFO and interim CEO of Houghton Mifflin Harcourt Publishing Co., and founder and CEO of Foxford Capital, LLC
• Charles G. Ward, partner, Perella Weinberg Partners, and former president of Lazard Ltd.
• Seth Meisel, managing director, Bain Capital

About International Paper

International Paper (NYSE: IP) is a global leader in packaging and paper with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. Its businesses include industrial and consumer packaging and uncoated papers. Headquartered in Memphis, Tenn., the company employs approximately 70,000 people and is strategically located in more than 24 countries serving customers worldwide. International Paper net sales for 2012 were $28 billion.  For more information about International Paper, its products and stewardship efforts, visit internationalpaper.com.

xpedx Cincinnati, Ohio-based xpedx, a business of International Paper (NYSE: IP), is one of the largest business-to-business distribution companies in North America. xpedx distributes a wide variety of printing, packaging, and facility supplies and equipment to printers, manufacturers, retailers and commercial facilities from locations across North America. For more information about xpedx, its business segments and stewardship efforts visit www.xpedx.com

Certain statements in this press release regarding the agreed-upon transactions may be considered "forward-looking statements," such as statements relating to expectations for the new company, whether and when the transactions will close, the expected revenue of the combined company and the new company's ability to generate solid cash flow. These statements may also be identified by words such as "intend," "expect," "anticipate," "will," "implied," "designed," "assume" and similar expressions.  These statements reflect the current views of International Paper's management and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to:  (i) the receipt of regulatory approvals relating to the transactions and the successful fulfillment or waiver of all other closing conditions without unexpected delays or conditions; (ii) the successful closing of the transactions within the estimated timeframes; (iii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition the companies face, cyclicality and changes in consumer preferences, demand and pricing for the companies' products; (iv) global economic conditions and political changes; and (v) other factors that can be found in International Paper's press releases and filings with the Securities and Exchange Commission.  International Paper undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.  This release does not constitute an offer to sell or the solicitation of an offer to buy any securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful.

SOURCE International Paper