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Vertical's Dillon on IP Buying WY Pulp Asset: 'Win Win' (Audio) · Bloomberg Intelligence

• 0:01
  Speaker 1: Paper, International Paper buying Warehouser's pulp business price tag two
• 0:06
  Speaker 1: point to billion dollars. Here to tell us more about it,
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  Speaker 1: as Chip Dylan, he's a partner and head of Global
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  Speaker 1: Paper and Packaging Practice at Vertical Research Partners. Chip Dlon,
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  Speaker 1: thank you very much for joining us. Good to join you, PIM.
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  Speaker 1: All right, So why is International Paper making this purchase? Well,
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  Speaker 1: you know, International Papers sort of boxed in part in
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  Speaker 1: the pun in terms of its ability to grow, given
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  Speaker 1: that they are the largest in corrugated boxes in the US,
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  Speaker 1: and I don't think that the antitrust authorities would let
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  Speaker 1: them grow bigger. This is a specialty niche business. The
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  Speaker 1: pulp that they are buying is used in high end
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  Speaker 1: consumer products that are used for absorbency, such as disposable diapers,
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  Speaker 1: feminine care products, and adult and continent products. And so
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  Speaker 1: I think it's a very strong market that's growing pretty
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  Speaker 1: rapidly around the world, and so it's an attractive avenue
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  Speaker 1: for them. Now, this is called fluff pulp. Correct, yes,
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  Speaker 1: fluff pulp. So what will be left at Warehouser after
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  Speaker 1: this purchase, Well, Warehouser will essentially be out of the
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  Speaker 1: paper and pulp manufacturing side of the business, and what
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  Speaker 1: you have with Warehouser is the largest tree owner or
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  Speaker 1: timberland owner UH in the United States, coupled with some
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  Speaker 1: wood products manufacturing facilities that use the timber from those lands.
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  Speaker 1: So Warehouser will in essence become more of a pure
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  Speaker 1: play and for international paper this deal will be what
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  Speaker 1: a creative to earnings well, you know, pim truth be told.
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  Speaker 1: Just about anything you do this day with the money
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  Speaker 1: for nothing in the sense of low interest rates is
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  Speaker 1: going to prove a creative. But I would say that
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  Speaker 1: even discounting that, it is a very attractive deal for
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  Speaker 1: international paper. When you look at the fluff market, it's
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  Speaker 1: a very technically demanding UH product in fact us to
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  Speaker 1: the fluff that was made before the nineteen nineties was
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  Speaker 1: made by Procter and Gamble and Kimberly Clark, which is,
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  Speaker 1: you know, are very high end consumer products companies, and
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  Speaker 1: they only in the last twenty five years have if
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  Speaker 1: in essence, sold off those operations for others to make
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  Speaker 1: the fluff pulp. So there's really only three or four
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  Speaker 1: major players. It's not a very wildly swinging commodity price
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  Speaker 1: type product. And so it gives steady, solid returns and
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  Speaker 1: that's more what i P is seeking to be. You'll
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  Speaker 1: notice that in the corrugated box business they've seen their
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  Speaker 1: returns get much more stable in the last seven eight
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  Speaker 1: years as they and others have consolidated that business. And
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  Speaker 1: who are there big competitors we talked in Georgia Pacific.
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  Speaker 1: Georgia Pacific, which you know is privately owned UH Warehouser course,
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  Speaker 1: will be leaving and dom Tar is the other major buyer.
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  Speaker 1: And I will add this, I don't think the government
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  Speaker 1: necessarily will let i P buy all of the Warehouser
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  Speaker 1: assets without some divestitures, but I do think they're going
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  Speaker 1: to allow them. And if there are divestitures to them,
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  Speaker 1: I think Domtar is the most likely buyer of the
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  Speaker 1: mill or two that would be required to be divested
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  Speaker 1: and and so it should be a win win win
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  Speaker 1: all around. And what about the actual paper mills, what
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  Speaker 1: are they buying? Where are they located? Well, these mills
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  Speaker 1: are located, uh, basically in the southeastern United States. There's
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  Speaker 1: one that's up in Canada. But what's interesting is is
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  Speaker 1: that i P has two mills already in the Fluff
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  Speaker 1: area that are located near one of Domtar's mills, So
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  Speaker 1: it wouldn't surprise me if i P actually was if
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  Speaker 1: you will upgrading buying the Warehouser assets which used to
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  Speaker 1: be owned by Procture and Gamble, and and and maybe
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  Speaker 1: it would be open to selling one or both of
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  Speaker 1: its own mills if it's required, and we're not trying
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  Speaker 1: to say they will be required. I would also add
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  Speaker 1: I think that i P and Domtar are going to
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  Speaker 1: look better in this than Warehouser necessarily will, because they
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  Speaker 1: have a pretty stiff tax bill on the sale of
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  Speaker 1: these mills. Chip, just last point to you. International Paper
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  Speaker 1: the stock pays about a four percent dividend, It's up
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  Speaker 1: more than fifteen percent so far this year, trades at
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  Speaker 1: forty dollars to share. Do you recommend people buying it? Absolutely?
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  Speaker 1: In fact, both i P and Domtar are are stocks
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  Speaker 1: we would recommend people buying upside. Thank you very much,
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  Speaker 1: Chip Dylan. He is a partner head of Global Paper
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  Speaker 1: and Packaging Practice at Vertical Research Partners. Shares of International
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  Speaker 1: Paper up fifteen cents right now forty three dollars and
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  Speaker 1: forty three cents