International Paper Co (IP.N) has won U.S. antitrust approval to buy rival Temple-Inland Inc TIN.N for $3.7 billion on the condition it divests three corrugated packaging mills, the U.S. Justice Department said on Friday.
The deal makes IP the largest North American producer of corrugated packaging, which is commonly used to make shipping boxes, ahead of rivals Packaging Corp of America (PKG.N) and MeadWestvaco Corp MWV.N.
"We're strategically committed to the corrugated packaging business," IP Chief Executive John Faraci told Reuters. "There's more opportunities for IP and Temple's businesses together."
The deal should close next week, most likely by Monday, Faraci said. IP expects the combination to save $300 million within two years.
Without the divestitures, the combined company would have had control of 37 percent of the North American capacity for containerboard, which is used to make corrugated boxes, the department said.
As part of the agreement, Temple-Inland will sell its mills in Waverly, Tennessee, and Ontario, California, and International Paper will divest either its mill in Oxnard, California, or one in Henderson, Kentucky.
"They're all relatively small facilities," Faraci said. "They're half the size of our average facility."
IP has four months to sell the plants, but will have two 30-day extensions if the sales lag. The sales will curb IP's influence on the highly competitive sector.
"With the mill divestitures, the transaction can proceed and American consumers and businesses across the country can be assured that competition is preserved in this important industry that is vital to the U.S. economy," said Sharis Pozen, the acting head of the Justice Department's antitrust division.
The Justice Department's blessing comes roughly seven months after IP first offered $3.3 billion for Temple and was turned down. In September, IP raised its offer 5 percent to $3.7 billion, gaining Temple's approval, but some issues remain for Faraci and IP to deal with.
Temple could be on the hook for environmental damages after it closed a Louisiana mill last month, saying it discharged too much waste, depleting oxygen levels in a river and killing fish.
Faraci told investors at the time that its offer factored in the potential costs and he repeated that on Friday.
"We're just going to take that over and continue to run that facility consistent with our practices to have no incidents," Faraci said.
Also, a pending lawsuit against Temple claims the company helped fuel the collapse of Guaranty Bank in 2009.
The approval, which was widely expected, did little to alter the share prices of either company. IP's stock was up 10 cents at $31.58 in afternoon trading and Temple's stock was up 12 cents at $31.99.
(Reporting by Ernest Scheyder in New York and Jeremy Pelofsky in Washington; editing by Lisa Von Ahn, John Wallace and Andre Grenon)