A Suzano acquisition would be credit negative for International Paper

On Tuesday, Reuters reported that Suzano, a Brazilian pulp and paper company, expressed interest in an all-cash acquisition of International Paper Company (NYSE:), a U.S.-based company.

The publication, citing people familiar with the matter, said the deal would be worth almost $15 billion. Reacting to those reports, analysts from corporate research firm Gimme Credit said in a note this week that International Paper will “most probably reject Suzano’s offer as the premium is quite limited.”

“Our calculations show proforma net leverage for the combined entity reaching 5.3x in 2024 (compared to our current forecast for IP of 2.1x),” said the Gimme Credit analysts.

Furthermore, they view the proposed transaction as credit negative for International Paper with the “introduction of a lower-rated Brazilian parent and materially higher leverage only partially offset by additional scale and possible synergy benefits.”

The analysts add: “We are not inclined to change our Underperform rating on the bonds at this time. In a no deal scenario, we still see IP bonds (+100) as rich to peers ahead of DS Smith integration.

“If a Suzano deal happens, bonds likely trade wider to Suzano levels (+190). There are change of control provisions in several of the International Paper bonds (on a downgrade to HY), however we think there is a reasonable probability that Suzano keeps its investment grade rating, as the increase in leverage could be offset by added scale and diversification.”

For Suzano, Gimme Credit views the proposed transaction as credit neutral for Suzano.