On October 14, 2011 International Paper (IP) announced that it has completed the acquisition of a 75 percent stake in Andhra Pradesh Paper Mills (APPM). IP purchased 53.5 percent of the APPM shares from Mr. L.N. Bangur and related family members and affiliates for approximately US$226 million in cash. They have also entered into a not to compete agreement, for which they received a cash payment of US$57 million. In addition, International Paper acquired an additional 21.5 percent of APPM shares in a public tender offer completed on October 8, 2011, for approximately US$105 million in cash. Mr. Paul Brown, President, IP India, has become executive chairman of the APPM.
After the announcement of APPM acquisition by IP, we had an interaction with Mr. Paul Brown in our Apr-May 2011, issue. Now with the completion of the acquisition it was right time to take a snapshot of the comprehensive plan of action which IP has chalked down on paper, the only thing that is left is the execution. During the interaction Mr. Paul Brown highlighted the way forward by saying “It’s a marathon, not a sprint”.
Paper Mart: You have recently completed the acquisition of APPM and now come the prioritizing aspect. Kindly summarize on your stepwise program ahead for APPM?
Paul Brown: We are taking a few months to learn more about the company, get to know the people and discover opportunities for improvement. IP technical experts are beginning to visit APPM and APPM managers are beginning to visit IP operations in the U.S. A long range facility plan for the mills is under development and this will be our roadmap for further investment. We are also getting to know APPM’s distributor network, and learning about the market for APPM’s products. IP’s impact on APPM will happen at a steady and positive pace but we are mindful that APPM has a business to run and customers to satisfy, so I don’t think anyone will detect sudden changes in the way APPM operates. It’s a marathon, not a sprint.
PM: M&A’s are highly effective means of achieving rapid corporate growth, penetrating into new markets and gaining a number of other strategic advantages. But they are also complex endeavors that require swiftly integrating resources and systems of different companies to realize the projected synergies. What steps are planned to ensure smooth integration of diverse corporate cultures and bridging fundamental differences in management style?
PB: International Paper has plenty of experience integrating acquired companies around the world. I’ve been deeply involved in five of IP’s acquisitions in the last 12 years, so I understand the complexities involved. Successful integration requires a thoughtful understanding of the acquired company’s unique company culture, as well as sensitivity to the local culture and norms. One of our first steps with APPM was to establish an integration team, with IP and APPM experts from all of the key business functions. This team is working quickly to ensure that APPM transitions smoothly into International Paper. In the end, some processes and policies in APPM will follow IP’s global norm and other aspects of APPM will continue same as before.
PM: Till today you must be abreast with the technological capabilities of the Indian manufacturers. What are your plans of bringing the IP’s technological forte to your Indian facility?
PB: International Paper has extensive experience in bringing global best practices in operational excellence, environmental, health and safety and social responsibility to the regions in which we operate. Over the next many months, we will have a considerable number of IP resources working closely with APPM management to identify opportunities where IP can bring best practices and transfer knowledge.
I should also note that APPM’s operations are well managed, so we expect to learn things from APPM that IP can spread around its global manufacturing network.
PM: IP specializes in the packaging grades and with the acquisition of APPM you are entering India with W&P grade? Kindly elaborate on the plans when are you bringing your specialization to India?
PB: It’s true that IP has a strong global footprint in packaging, but we also have a strong global footprint in W&P grades. We’ll be studying opportunities for expansion and we may expand into other grades or market segments, if it makes sense and if we can generate attractive returns for our shareholders. In any event, W&P is a good place to be in India for a long time to come.
PM: Kindly brief us about the vision and mission with which this acquisition was primed and your long term plans for the Indian market as a whole?
PB: It’s simple, India is one of fastest-growing markets for paper and packaging in the world and we expect paper and packaging demand to grow at a fast rate for many years. I think it’s an amazing fact that India has about 15 percent of the world’s population, but consumes less than 2 percent of the world’s paper. India’s rapid economic growth, combined with increasing focus on education and the growing middle-class will drive the growth of paper consumption well into the future. IP has entered this fast growing market via an established company, with good assets, good people, access to fiber and room for expansion. We are enthusiastic about India’s future, and pleased with the investment in APPM.
PM: Kindly highlight the areas where you think that the premium which IP has paid for the acquisition will provide you the justified returns in the long term?
PB: APPM is a strategic investment for International Paper and the price we paid reflects the cost of entry into a high-growth market with significant upside in the future. We take a long-term view of the investment, and APPM provides an attractive platform for growth.
PM: Your thoughts on the challenges & opportunities ahead for the IP in the Indian market in terms of customers & suppliers both?
PB: The opportunities are to significantly improve the existing business, grow in line with market growth, and perhaps expand beyond W&P grades into other market segments. I don’t see any specific challenges beyond the normal challenges that you face in any business, every day, in any area of the world. I believe that customers and suppliers will be very pleased with what IP brings to APPM, over time.
PM: “The existing management team and 2,500 employees of APPM will continue to operate the business, supplemented by additional International Paper leadership, and professional and technical resources” Comment?
PB: APPM has experienced and competent people and the current management team will continue to operate the business. We have added a few additional people to the IP team in Hyderabad, including myself, who will support APPM, share global best practices and introduce International Paper culture to the Andhra Paper team. As part of International Paper, Andhra Paper will have access to the company’s network of professional and technical services and expertise. IP puts enormous focus on people and we want to make APPM a great company for people to grow and develop, to have career opportunities, and to be highly engaged in running a very successful business. The future is bright for APPM and International Paper, and I have no doubt that we will be successful in the Indian market.