International Paper recycled bad news into good on Friday, announcing an investor-friendly $1.5 billion five-year investment in Russia after a week of mill closures and union agreements in the U.S.
The Memphis, Tenn.-based packaging and paper specialist said it had acquired a 50% stake in Russian mill operator Ilim for $650 million, in a bid to take advantage of "low-cost, high-growth markets in Russia and Asia." The two companies plan to spend $1.5 billion over the next five years upgrading Ilim's four mills, increasing their production capacity and developing new paper products.
It marks a significant commitment to the Asian market, given that so far International Paper (nyse: IP - news - people ) 's only operations in Russia consist of a single pulp and paper mill in Svetogorsk, in the Leningrad region.
"Our goal of course was to grow our position in Russia," said International Paper spokeswoman Amy Sawyer of the deal, which had been in the pipeline since October 2006. She said that the company had always wanted 50% ownership rather than full control, as Ilim had better knowledge of the Russian market.
Shares in International Paper rose 78 cents, or 2.4%, to $33.10 during midday trading in New York. The stock has fallen 10% since the beginning of the month, when the company blamed the rising cost of raw materials for its disappointing second-quarter results. (See "International Paper Torn Up By Traders")
International Paper said this week it would officially close its Terre Haute, Ind. containerboard mill on October 1, and it also signed an agreement with the United Steelworks union promising to protect wages, benefits and jobs at 14 of its mills.
The rising costs of energy, raw materials and labor have hurt the industry, with companies following cost-cutting and consolidation routes to try to ease the burden. Hence International Paper's acquisition of Central Lewmar from private equity's Chrysalis Capital Partners for $185 million on Tuesday, as well as Friday's joint venture announcement.
It remains to be seen whether expanding outside of the U.S. can paper over the sector's cost cracks.Forbes
