| NEW YORK
NEW YORK International Paper Co (IP.N) sealed a $3.7 billion deal to buy rival Temple Inland Inc TIN.N by raising its offer 5 percent, cementing its position as the leader of the North American corrugated packaging market.
The deal, which is expected to close by the end of 2012, came together after a Labor Day weekend meeting between IP Chief Executive John Faraci and Temple counterpart Doyle Simons.
Simons opened Temple's books to Faraci -- something he had refused to do since the IP offer was made public in June and IP went hostile in July.
IP initially offered $30.60 per share, an amount that Temple had repeatedly said was too low.
After reviewing Temple's numbers, Faraci and the rest of IP's board voted on Monday night to boost the offer to $32 per share, roughly $3.7 billion.
IP will assume $600 million in Temple's debt.
The deal averts a prolonged hostile bid process, which likely never would have succeeded given Temple's poison pill defense.
"We concluded that we were ready, willing and able to offer $32 per share and still remain highly confident that we had an accretive, strategic and financially attractive acquisition," Faraci told Reuters in a phone interview.
Temple makes corrugated packaging, which is used to make shipping boxes. When the deal closes, International Paper will be able to consolidate pricing power by controlling roughly 40 percent of the corrugated industry.
It was not clear how regulators would view the deal. The U.S. Department of Justice issued a second request for material related to the Temple-Inland bid in July.
Faraci told Reuters on Tuesday he has not heard back from the Justice Department since then.
But after the department moved last month to block AT&T's (T.N) bid for T-Mobile USA, any large deal that increases share of a market could come under intense scrutiny.
"While there's definitely a possibility that maybe they'll scuttle it, I think it likely will get approved," Morningstar analyst Tom Mullarkey said.
IP declined to disclose the fee it would have to pay Temple if the deal collapses.
Analysts are also concerned about Temple's legal liabilities.
A pending lawsuit against Temple claims the company helped fuel the collapse of Guaranty Bank in 2009.
Temple could also 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 tried to assuage analysts' concerns about the Louisiana mill and Guaranty suit, saying on a conference call that both issues were factored into the final offer.
"We are highly confident we can do the deal," Faraci said. "We are confident that we will work through the regulatory approval in a way that won't impact the fundamental value of the deal to International Paper."
It is too soon to tell whether Simons or other Temple executives will stay with the company once the deal closes, Faraci said.
Shares of Temple rose 25 percent to $30.85 in afternoon trading, as shares of IP rose 3 percent to $26.25.
(Reporting by Ernest Scheyder; Editing by Derek Caney, Dave Zimmerman and Tim Dobbyn)