International Paper may be close to selling off its European business.
The rumored sale price would amount to a huge loss over the price IP paid for the business just two years ago.
Still, a sale would remove International Paper's debt overhang and ongoing operating losses.
Shares of paper packaging giant International Paper (NYSE:IP) rallied 7.6% on Thursday as of 2:28 p.m. EDT.
International Paper has struggled this year, down roughly 20% year-to-date before today's bump. Growth has stagnated for the company, while costs have risen due to inflation, tariffs, and interest rates.
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Today, however, it was reported that two private equity firms may bid for the company's European business. That could relieve some pressure on International Paper's balance sheet and eliminate a segment that had been dragging down results.
International Paper bought its European business, formerly known as DS Smith, for $9.9 billion back in 2024. The acquisition has not gone well, with the segment showing slight revenue declines and segment operating losses over the past year.
Today, The Financial Times reported that two private equity firms are bidding for DS Smith, with the report estimating the total sale may be less than $6 billion -- a 40% discount to International Paper's purchase price.
It's not a great sign that International Paper is selling a business it bought just two years ago for a massive loss. Still, even a sale at that discounted price would relieve pressure on the company's overall results. International Paper is currently weighed down by about $8.5 billion in net debt. Meanwhile, the Europe segment has been generating steady operating losses, while the company's North American business has remained profitable. Thus, investors may be buying the stock today in a "relief rally" off recent lows.
Image source: Getty Images.
Even if International Paper succeeds in selling the European business for $6 billion, its North American business hasn't exactly been shooting the lights out. Last quarter, the North American segment saw a 4.5% decline in revenue and a 26.4% decline in operating income.
That's still a struggling business; unless things turn around meaningfully, today's bounce could prove to be a one-off, as it doesn't appear the paper packaging business will be a strong growth industry going forward.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.