US company pays a bomb for Andhra Paper reins

In a move underlined by the growing demand for paper in the country, US-based International Paper, the world’s largest paper company, on Tuesday said it would buy a majority stake in Andhra Pradesh Paper Mills Ltd (APPML), India’s fifth-largest paper company, in a deal worth Rs1,894 crore ($423 million).

The Tennessee-based pulp-and-paper company will buy a 53.5% stake from LN Bangur, the promoters of APPML, for Rs1,551 crore ($257 million).

As required by the country’s securities law, it will then make an open offer to acquire up to an additional 21.5% of the outstanding shares of APPML for approximately $104 million in cash.

Upon completion of the deal, expected by the third quarter of 2011, International Paper would control up to 75% of APPML.

Additionally, International Paper will pay Rs278 crore ($62 million) in non-compete payment to the Kolkata-based Bangur family.

“APPML is an established and highly respected company in India, and is an excellent platform for International Paper to grow with the Indian paper and packaging markets,” John Faraci, chairman and chief executive officer of International Paper, said in a statement.

International Papers, including the non-compete fees and the money paid for buying 53.5% stake, has valued APPML at `671 a share, a 241% premium over the present share price of `196.80. Such a high valuation can be explained by seeing the growing demand for paper in India.

Paper demand in the country is expected to grow at a compound annual growth rate of 5.5% from 2008 to 2020, higher than 4.8% growth in China and significantly higher than in Western Europe (-0.3%) and North America (-0.5%), according to Poyry, an independent consultancy focusing on the paper and pulp industry.

Further, paper-and-pulp companies see huge untapped demand in the country as per capita paper consumption remains low. Poyry estimates per capita demand totalled 8 kg in 2009 compared with 63kg in mainland China, and 227 kg in the US.

The news comes days after Bilt Paper, the coultry’s largest paper producer, announced plans to raise about $330 million by listing on London Stock Exchange.

Earlier his year, diversified conglomerate ITC said it will invest Rs3,000 crore to set up a 3,00,000 tonne per annum manufacturing facility adjacent to its existing one in Khammam, Andhra Pradesh.