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International Paper Company (IP): This Multi-Billion Dollar Hedge Fund Loves Paper, Should We?

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The multi-billion dollar hedge fund, Senator Investment Group, run by former York Capital Management employees, Douglas Silverman and Alexander Klabin, now own over 23 million International Paper Company (NYSE:IP) shares. This is a five-fold increase from the 4.18 million shares owned by the fund at the end of 2012, giving the company ownership of 5.2% of IP’s shares. Senator had International Paper Company (NYSE:IP) as its sixth largest holding at the end of 2012.

Who Is International Paper Company (NYSE:IP)?

International Paper Company (NYSE:IP is a global paper and packaging company, serving markets in in North America, Europe, Latin America, Russia, Asia and North Africa. The company managed to post EPS during the fourth quarter 2012, which beat estimates by 6%, thanks in part to the accretive acquisition of Temple-Inland.

One of International Paper Company (NYSE:IP’s key strategies includes pursuing strategic acquisitions. This includes the recent acquisition of Texas-based Temple-Inland, which is the company’s largest since acquiring Weyerhaeuser Company (NYSE:WY)’s corrugated-packaging business for $6 billion in August 2008. This helped IP meet its $300 million synergy target a year ahead of schedule, and IP now expects an additional $100 million in synergies before the full Temple-Inland integration is complete.
Moreover, the combination will fortify the packaging business of North America by increasing its share in the corrugated packaging market to 34% from the current level of 27%. Other key initiatives includes those in Russia, China and Brazil, namely its joint venture in Russia for a pulp mill in Bratska and a new paper machine at the Koryazhma mill in Russia.
Other major paper companies include Domtar Corp (USA) (NYSE:UFS), Clearwater Paper Corp (NYSE:CLW) and P.H. Glatfelter Company (NYSE:GLT). Domtar designs, manufactures and distributes a range of fiber-based products, including communication papers, specialty and packaging papers, and adult incontinence products. The industry tailwinds are expected to see revenues increase some 1% in 2013 after declining 2.3% in 2012.

The headwind for Domtar is the expectation that pulp prices for 2013 will remain weak. Domtar Corp (USA) (NYSE:UFS) reported fourth quarter EPS that came in at $1.31, compared to $1.87 for the same period a year ago. This was also below analysts’ estimates of $1.40, but new ventures in personal care and specialty papers should help the company longer-term; still, hedge funds appear to be bearish on the company for now.

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