The basis for the Board's recommendation with respect to IP's tender offer is set forth in Temple-Inland's Schedule 14D-9, filed today with the Securities and Exchange Commission ("SEC"), a copy of which is available here and on Temple-Inland's website.
"Since we launched the 'new' Temple-Inland in January 2008, we have delivered superior results to our stockholders compared with our corrugated packaging peers, building products peers, and the S&P 500. The Temple-Inland Board is unanimous in its belief that the offer grossly undervalues Temple-Inland and its prospects, including its position as the return on asset leader in the corrugated packaging industry, expected benefits from box plant transformation, its low-cost building products operation, and its strategic place within the industry as the third largest producer of corrugated packaging in North America," said Doyle R. Simons, Chairman and Chief Executive Officer of Temple-Inland.
As fully outlined in Temple-Inland's Schedule 14D-9, Temple-Inland's Board recommends that Temple-Inland stockholders not tender their shares into IP's offer because:
- International Paper's unsolicited offer grossly undervalues Temple-Inland and its future prospects:
- The Board believes Temple-Inland's accelerating growth of earnings and return on investment will result in superior value to Temple-Inland's stockholders as compared to the price being offered by IP.
- IP overstates Temple-Inland's net debt. The Company's net debt at the end of first quarter 2011 was $737 million, not $828 million as IP calculated for purposes of pricing its offer.
- IP wrongly characterizes Temple-Inland's timber financing transaction as a liability rather than an asset. IP appears to have considered only one aspect of the transaction, the present value of the settlement of the tax on the deferred gain, and ignored the remaining positive components (including alternative minimum tax credits) of the transaction, which together result in a net benefit.
- IP's offer fails to appropriately compensate Temple-Inland stockholders for the very significant synergies that IP would realize and the extraordinary level of earnings accretion that would result if an IP/Temple-Inland transaction were to occur.
- IP seeks to compare its offer price to valuation metrics from so-called "precedent" transactions that involved underperforming assets of other companies that are not comparable to Temple-Inland and its industry-leading returns, high-quality assets and low-cost structure.
- IP's offer does not appropriately reflect the fundamental changes and improved focus in the corrugated packaging industry. These fundamental changes and improved industry focus are expected to be beneficial to Temple-Inland, which, as a result of its strong position in the corrugated packaging industry and its low-cost operations, is well positioned to continue to achieve improving results.
- Temple-Inland is the largest remaining independent, publicly-held industry participant whose acquisition would fundamentally transform the industry, and IP's offer does not appropriately compensate Temple-Inland's stockholders for that strategic value.
- The timing of International Paper's unsolicited proposal is extremely opportunistic and disadvantageous to Temple-Inland stockholders:
- Housing markets are at historically low levels, temporarily depressing the value of our building products operations. IP is attempting to take advantage of our stockholders by moving to grab Temple-Inland at a bargain price at a time when there is little or no market value being ascribed to building products.
- As IP itself has consistently highlighted to the investment community, corrugated packaging demand remains below prerecession levels, but is expected to recover in the near future as the economy continues to improve. IP is attempting by its offer to acquire Temple-Inland before corrugated packaging demand returns to prerecession levels and pricing further improves.
- We estimate that $90 million of the annual cost savings from our Box Plant Transformation II project are still to be realized - our stockholders, not IP's, deserve to receive the benefit of the significant capital we have invested in this project.
- IP initially publicized its proposal to acquire Temple-Inland during a period of market weakness in order to claim an inflated "premium".
- The potential acquisition is subject to regulatory and other uncertainty:
- IP is proposing a combination of the largest and third largest producers of corrugated packaging in North America.
- Given the regulatory uncertainty and the significant conditionality of IP's offer, there is considerable uncertainty regarding the offer and the timing of Temple-Inland stockholders receiving the "certain" value that IP claims to be offering.
As noted above, the Company's Schedule 14D-9 is available on the SEC's website. In addition, the Schedule 14D-9 and other materials related to IP's unsolicited proposal are available in the "Investor Relations" section of the Company's website. The Company urges stockholders to read the Schedule 14D-9 carefully and in its entirety.
Goldman, Sachs & Co. is acting as financial advisor to Temple-Inland, and Wachtell, Lipton, Rosen & Katz is acting as Temple-Inland's legal counsel.