Investing.com – Brazilian pulp and paper giant Suzano (BCBA:) is looking to raise up to $19 billion in debt for a potential acquisition of International Paper (NYSE:), Bloomberg reports.
Jefferies analysts forecast a potential cash offer for the IP in the range of $54-$57 per share, in line with previous investor expectations. However, IP’s board of directors may value the company significantly higher.
Suzano’s strategic move aims to create a global industry leader with robust cash generation capabilities to accelerate debt reduction. The company is also close to completing a $4.2 billion project to increase its hardwood pulp production, which is expected to further boost its free cash flow.
The reported $19 billion in debt Susano is seeking to raise suggests the potential acquisition price for the intellectual property is in the $54-$57 range. This would increase Suzano’s forecast leverage to 5.9 times its estimated 2024 earnings or 5.3 times its 2025 forecast based on Suzano’s consensus forecasts and IP model forecasts.
Given that IP shareholders are pushing for the company to sell its pulp business, it is unlikely that they will agree to take over the Brazilian pulp company’s shares. This is especially true given the decline in Suzano’s share price since it expressed interest in the intellectual property.
So news of Susano’s potential $19 billion debt coincides with the expectation that any offer worth less than $50 in cash will likely be rejected.
If liner growth of $50 per ton continues, it could boost IP’s EBITDA by about $550 million, or about 26%. Using this structure, IP shares could reach nearly $56, even before factoring in any upside from Silvernail’s business and operational initiatives.
In a best-case scenario, IP’s share could approach $90 if IP manages to close the revenue gap per ton and the $50 per ton increase continues.
However, with mixed investor sentiment surrounding the SMDS deal and a potential cash offer of around US$50, deciding on the equity component becomes more challenging. Especially considering that Suzano shares have fallen more than 20% since the first reports of interest in the intellectual property, while IP shares have risen.
Jefferies analysts have maintained a Buy recommendation on International Paper (NYSE:) shares with a target price of 57.