Investing.com – Brazilian pulp and paper large Suzano (BCBA:) is reportedly seeking to safe as much as $19 billion in debt to doubtlessly purchase Worldwide Paper (NYSE:), in line with Bloomberg.
Analysts from Jefferies are predicting a possible money provide for IP within the vary of $54-57 per share, a determine that aligns with earlier investor expectations. Nonetheless, IP’s board might worth the corporate considerably larger.
Suzano’s strategic transfer is geared in the direction of creating a world trade chief with strong money technology capabilities to expedite debt discount. The corporate can be nearing the completion of a $4.2 billion undertaking to spice up its hardwood pulp capability, which is predicted to additional improve its free money movement.
The reported $19 billion debt that Suzano goals to lift implies a possible acquisition worth for IP within the $54-57 vary. This might enhance Suzano’s projected leverage to five.9 instances its 2024 estimated earnings or 5.3 instances its 2025 estimates, primarily based on consensus predictions for Suzano and IP mannequin forecasts.
Given IP shareholders’ push for the corporate to divest its Cellulose enterprise, it appears unlikely they’d settle for inventory in a Brazilian pulp firm. That is notably true given Suzano’s falling share worth since expressing curiosity in IP.
Due to this fact, the information of Suzano’s potential $19 billion debt aligns with the expectation that any provide under mid-$50s in money would doubtless be rejected.
If the $50 per ton enhance in linerboard holds, it may increase IP’s EBITDA by roughly $550 million or round 26%. Utilizing this framework, IP’s shares may attain near $56, even earlier than contemplating any uplift from Silvernail’s business and operational initiatives.
In an optimum state of affairs, shares of IP may method $90 if IP manages to shut the hole on income per ton and the $50 per ton enhance sticks.
Nonetheless, with combined investor sentiments relating to the SMDS deal and a possible mid-$50s money provide, deciding on an fairness part turns into more difficult. Particularly on condition that Suzano’s inventory has dropped by over 20% since preliminary stories of its curiosity in IP surfaced, whereas IP’s inventory has rallied.
Analysts at Jefferies have retained their Purchase score on Worldwide Paper (NYSE:) with a worth goal of 57.
