Investing.com – Brazilian pulp and paper giant Suzano (BCBA:) is reportedly looking to raise up to $19 billion in debt to acquire International Paper (NYSE:), according to Bloomberg.
Jefferies analysts expect a potential all-cash offer for the IP in the range of $54-57 per share, a figure consistent with previous investor expectations. However, an IP company's board of directors may value the company much higher.
Suzano's strategic move aims to create a global, industry-leading company with strong cash generation capabilities to accelerate debt reduction. The company is also nearing completion of a $4.2 billion project to enhance its hardwood pulp capacity, which is expected to boost its free cash flow.
The reported $19 billion in debt that Suzano aims to raise suggests a potential acquisition price for the IP in the $54-57 range. This will increase Suzano's expected leverage to 5.9 times its estimated 2024 earnings or 5.3 times its 2025 estimates, based on consensus forecasts for Suzano's model and IP forecasts.
Given pressure from the company's IP shareholders to divest its cellulose business, it seems unlikely they would accept shares in a Brazilian pulp company. This is especially true given the decline in Suzano's stock price since expressing interest in the intellectual property.
Therefore, news of Suzano's potential debt of $19 billion is consistent with expectations that any cash offer below the mid-50s will likely be rejected.
If the $50 per ton increase in liner continues, this could increase IP's EBITDA by about $550 million, or about 26%. Using this framework, IP shares could reach approximately $56, even before considering any upside from Silvernail's business and operational initiatives.
In the optimal scenario, IP shares could approach $90 if IP can close the gap in revenue per ton and the $50 per ton increase remains.
However, with mixed investor sentiment regarding the SMDS deal and the potential cash offer in the mid-50s, deciding on the equity component becomes more difficult. Especially since Suzano's stock has fallen more than 20% since initial reports of its interest in intellectual property emerged, while IP stock has risen.
Analysts at Jefferies maintained their Buy rating on International Paper (NYSE:) with a price target of 57.
