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The bidding war for Champion International (CHA) ended on Friday when International Paper (IP), the world's largest paper maker, topped the bid of Finland's UPM-Kymmene (UPM), Europe's second-largest paper company. UPM-Kymmene had raised its original offer for Champion, a major U.S. forest products company, to an all-cash bid of about $6.8 billion, or $70 a share. However, IP came back on May 12 with a sweetened bid of $7.3 billion, or $75 a share, which Champion has accepted. Champion's stock climbed to 73 3/16 on May 15 from 66 on May 12, when it was last featured in this column, which had predicted the anticipated UPM-IP bidding war.
So, where does UPM go from here? Is it accepting this defeat and sulking homeward? Hardly. The pros are already betting that UPM is eyeballing Boise Cascade (BCC). One of Boise's attractions as a potential UPM target, says one investment manager who has been buying Boise shares, is its position as the third-largest producer of uncoated free-sheet paper -- common writing or printing paper. Boise is an integrated paper and forest-products company that produces and distributes paper, paper products, office products, and building products such as plywood. And it owns nearly 2 million acres of timberland in the U.S.
PRETTY AND CHEAP.
Since losing Champion, UPM has stated that it remains interested in a U.S. acquisition. It has told some big investors that it sees a deal in the U.S. as a way to broaden its global reach. Already the world's largest producer of magazine paper and second-largest printing-paper maker, UPM derives 30% of its sales from its magazine paper. It also has leading positions in such products as label-base paper, label stock, and specialty plywood.
"Its global leadership and lowest-cost position in magazine paper have made it the only paper company to be included in Morgan Stanley's portfolio of Competitive Edge 40 Top picks," according to a Morgan Stanley report on global paper and forest-products companies.
Analysts think Boise is one of the most attractive and inexpensive forest-products companies around, trading at $36 a share, or a market cap of $2.1 billion. The stock is selling at 9.7 times Morgan Stanley Dean Witter's 2000 estimated earnings of $3.68 a share, and 5.8 times estimated 2001 earnings.
Boise is generating annual free cash flow of $350 million to $400 million, estimates one money manager who has accumulated a large stake in it. On fundamentals alone, he says, the stock is worth $55 a share. But in a takeover, this pro values the stock at $65, which would give Boise a market cap $3.7 billion.
"ENOUGH SMOKE."
But some analysts say UPM isn't the only paper company interested in Boise. Georgia-Pacific (GP) is another rumored suitor, says one analyst who declined to be identified. GP also produces and distributes pulp, paper, and building products. Its paper products include containerboard, packaging, and tissue, and among its building products are plywood, oriented-strand board, lumber, and gypsum products.
Says one big Boise investor: "There is enough smoke on Boise that we think something will, indeed, happen -- with UPM or GP, or somebody else."
Senior Writer Marcial has been writing Business Week's Inside Wall Street column for 18 years. Catch his online column every Tuesday afternoon
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