International Paper Company (IP), Rock-Tenn Company (RKT), KapStone Paper and Packaging Corp. (KS): Perry Capital is Betting on Paper Mills

Several stocks in the paper and packaging industry rocketed on Thursday, July 24, after a report from Richard Perry’s Perry Capital got out. In the document, the fund presented a bullish case for the paper and packaging producers that could pursue Master Limited Partnership (MLP) treatment. According to several sources that could take a look at this report, the fund had commissioned an analysis by PricewaterhouseCoopers (PwC), which “concluded that domestic virgin containerboard mills using less than 25% recycled fiber, based on annual input weight, should be MLP-eligible and that such assets could be contributed to an MLP on a tax-efficient basis.”

Richard Perry

But, why would getting MLP treatment be so favorable for these companies?

Well, MLPs pay no federal income tax, as long as they distribute most of their cash to shareholders. And, although none of these companies have yet requested a ruling from the IRS, some of them are already considering the option – as International Paper Company (NYSE:IPspokesman Tom Ryan confirmed.

Anticipating the adoption of this new tax structure, which could in turn result in a 50%-100% share price increase –according to the report, Mr. Perry has been betting on the paper and packaging industry, Bloomberg News reported. In a second-quarter letter to investors that Bloomberg could access, the fund “took positions or increased holdings in International Paper Company (NYSE:IP), Rock-Tenn Company (NYSE:RKT) and KapStone Paper and Packaging Corp. (NYSE:KS).

Other major hedge funds betting on all three of the aforementioned companies – International Paper Company (NYSE:IP), Rock-Tenn Company (NYSE:RKT) and KapStone Paper and Packaging Corp. (NYSE:KS) - are D E Shaw, which last reported having either increased or started a new position in these companies; and Steven Cohen’s former SAC Capital Advisors, currently known as Point72 Asset Management (and one of its subsidiaries: Cr Intrinsic Investors).

International Paper Company (NYSE:IP) advanced by 5.54% on Thursday’s trading, Rock-Tenn Company (NYSE:RKT) – by 7.49%, and KapStone Paper and Packaging Corp. (NYSE:KS) – by 10.44%. However, the companies still look attractive in terms of valuation, especially since stock prices could rocket even higher any time soon.

Disclosure: Javier Hasse holds no position in any stocks or funds mentioned

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