Georgia-Pacific Corp., the world's biggest tissue maker, agreed to be acquired for $13.2 billion in cash by Koch Industries Inc., the second-largest privately held company in the United States.
Koch will pay $48 for each Georgia Pacific share, a 39 percent premium to its $34.65 closing price on Nov. 11, the companies said Sunday in a joint statement. The transaction would be the biggest ever for Wichita, Kansas-based Koch.
Atlanta-based Georgia-Pacific, the producer of Brawny paper towels, shipping boxes and lumber, has been hurt asbestos-related legal settlements, volatile lumber prices rising energy costs and debt. As a unit of Koch, Georgia-Pacific will be able to focus on long-term profit growth rather than quarterly results, Georgia- Pacific spokeswoman Robin Keegan said.
"It's more difficult to make long-term investments sometimes when you're operating as a publicly held company," Keegan said. "You can weather business cycles better and make decisions better to optimize long-term profits."
Georgia-Pacific, which will retain its name and headquarters, Sunday also announced that it would buy back $2.6 billion in bond debt. The company had $7.94 billion in debt at the end of the third quarter, including obligations from its 2000 purchase of tissue maker Fort James.
Koch is paying about 17 times Georgia-Pacific's estimated earnings for 2005, below the industry average. The Standard & Poor's Supercomposite Paper and Forest Products Index of 14 companies, including International Paper Co., has a price-to- earnings ratio is 18.8 percent, according to Bloomberg data.
Koch is the second-biggest closely held company in the United States behind Cargill Inc., according to Hoover's Inc. The company has annual revenue of more than $60 billion and interests in the petroleum, minerals, pulp and paper industries.
The company in May last year acquired two mills in Brunswick, Georgia, and New Augusta, Mississippi, from Georgia- Pacific for $610 million. The mills make fluff pulp used in diapers, baby wipes and sanitary products. Koch last year also acquired an Alaska refinery and 3 percent interest in the Trans Alaska Pipeline System from Williams Co.; chemicals business and assets from BP Plc, and fiber and polymers businesses from DuPont Co.
Koch says that it reinvests as much as 90 percent of profits back into its businesses to fuel growth.
"We have extensive experience with cyclical, highly competitive businesses and the ability to commit appropriate resources to enhance the company's assets and pursue a growth agenda," Koch Chief Executive Charles Koch said in the statement.
The companies began their relationship when Georgia-Pacific sold pulp mills to Koch, Keegan said. Serious discussions about the current agreement began about a month ago, she said.
Georgia-Pacific said on Oct. 27 that third-quarter net income dropped 40 percent to $145 million, or 55 cents a share, as box prices fell and costs rose for chemicals, energy and wood. Prices for lumber and plywood also have fallen over the past year, hurting the company's earnings, as the industry's production increased.
Georgia-Pacific's shares have fallen 3 percent in the past 12 months.
Goldman Sachs Group Inc. advised Georgia-Pacific while Citigroup Inc. advised Koch, according to the statement.
Contributing: Adrian Cox