International Paper Co., the world's largest paper producer, is taking a step back from manufacturing in Asia as it exits a Chinese joint venture and evaluates the sale of 18 other factories in the region.
Memphis-based International Paper agreed to sell its 55 percent stake in the coated-board joint venture to its partner, Shandong Sun Holding Group Co., the company said late Thursday in a statement. International Paper will get $23 million in the sale and take a pretax writedown of about $200 million for the third quarter.
International Paper also said that, after a review of its Chinese and Asian markets, the company is looking at "strategic options" for its corrugated-box business in China and Southeast Asia. It signed a nonbinding letter of intent with a potential Chinese-based buyer.
"The company remains committed to serving these very important markets, but concluded we could be more effective supplying this region with globally competitive products primarily through our Ilim joint venture in Russia and from the U.S.," Chairman and Chief Executive Officer Mark Sutton said in the statement.
International Paper shares rose $2.14, or 5.2 percent, to close Friday at $43.23 in New York. They earlier gained as much as 9.1 percent, the most intraday in almost four years.
China is oversupplied and companies such as International Paper are not making money, according to Mark Wilde, an analyst with BMO Capital Markets. International Paper was not performing well prior to the economic slowdown in China, he said.
"There have been too many players building capacity in anticipation of growth," Wilde said in a telephone interview from New York. "I don't think they've been generating much in returns."
China has been challenging for International Paper and other manufacturers as margins are weak because of intense competition, Kevin Mason, managing director of ERA Forest Products Research, said in an emailed statement. There's substantial overcapacity in the Chinese paper packing market and the company feels it is better to "stick to its strengths" rather than try to compete directly in China, he said.
"The sale definitely makes sense for them," Mason said.
The venture with Shandong Sun was started in 2006 and has one plant in Shandong Province with an annual capacity of about 1.54 million tons. International Paper said the sale of its stake is expected to close in the next six months. The corrugated-box plants in China and Southeast Asia employ about 3,000.
Business on 10/10/2015