Filed by International Paper Company
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Company: Champion International Corporation
Commission File No.: 001-03053
INTERNATIONAL [GRAPHIC] PAPER
Offer to Purchase
Champion International
Focused Strategy to Strengthen
International Paper's Core Businesses
[SLIDE PRESENTATION]
INTERNATIONAL [GRAPHIC] PAPER
<PAGE>
[Slide 1]
IP Proposed Offer for Champion
o $64.00 per Champion share
o $43.00 in cash and $21.00 in IP shares
o Downside protection for Champion shareholders
to $36.00 per IP share
o No significant anti-trust issues
o Requires Champion Board and shareholder approvals
o Accounted for as a purchase by IP
[Slide 2]
Clearly Superior to UPM Proposal
o Significant additional value for Champion shareholders
- Nearly 25% premium to closing price on April 24, 2000
- More than 20% premium to implied UPM offer on April 24, 2000
o Certainty of value to Champion shareholders
- Significant cash component - 67%
- Downside protection on stock component
- Liquid Dow 30 stock, market cap. of $16.6 billion
o Limited conditions to closing
[Slide 3]
Important Strategic Step for IP
o IP becomes a leader in each of our core businesses
- Strengthens both coated and uncoated printing papers
- Complements timberland, wood products and containerboard
o Increases IP's focus
- Re-allocate resources to strengthen core businesses
- Divest more than $3 billion of other assets
o Creates significant value for IP shareholders
- Merger benefits of $425 million per year
- Large cash component minimizes equity dilution
- Accretive to IP EPS in 2001 and across the cycle
- Earns cost of capital over the cycle
[Slide 4]
Enhances IP's Three Core Businesses
Packaging
- Industrial - Corrugated Boxes (IP)
- Consumer - Folding Cartons (Champion)
Printing Papers
- Uncoated Freesheet
- Coated Paper
- Distribution
Timberlands
- Building Materials
[Slide 5]
Champion Complements IP's Business Mix
IP IP pro Forma
1999 Sales Breakdown 1999 Sales Breakdown
$25.2 Billion (1)
[Pie Chart 1] [Pie Chart 2]
Packaging - 29% Printing papers - 27%
Distribution - 26% Packaging - 25%
Printing Papers - 22% Distributions - 24%
Forest Products - 12% Forest products - 14%
Carter Hold Harvey - 6% Carter holt Harvey - 5%
Chemicals - 5% Chemicals - 5%
(1) Pro Forma Shorewood Packaging
Source: 1999 Annual Reports for IP and Champion.
[Slide 6]
Enhances IP's Market Position
Uncoated Freesheet
o Merger gives IP the largest and lowest-cost system in N.A.
o Half of the newest and most efficient UFS mills in N.A.
o World-class mills at Riverdale, Eastover and Courtland
Coated Papers
o IP becomes a leader in coated papers in N.A.
o Low cost position that can be further improved
Merchant Distribution
o Nationwide provides substantial margin improvement opportunities
Linerboard
o Roanoke Rapids enhances IP's strong containerboard system
Timberlands/Wood Products
o IP strengthens its fiber base and wood products position
Latin America
o Highly profitable UFS and coated groundwood position in Brazil
o "Swap" stake in COPEC for control of Brazilian business
[Slide 7]
Expands IP's Portfolio of Large Low-Cost
Uncoated Freesheet Machines
N.A. Capacity - Uncoated Freesheet
(Tons in Millions)
[Bar Chart]
IP/Champion 4.7
IP 3.4
Georgia Pacific 2.2
Boise Cascade 1.5
Williamette 1.4
Weyerhaeuser 1.4
UFS Ranked by % of Large Machines
Avg.
Mach % Large
# of Size Mach
Company Mach (000 Tons) (>250")
- -----------------------------------------------------
Champion 6 225 67%
1. IP/Champion 26 182 60%
IP 20 169 45%
2. Willamette 9 157 33%
3. Weyerhaeuser 9 154 33%
4. Georgia-Pacific 19 116 21%
5. Boise Cascade 10 153 20%
Source: Industry Reports, Company Information.
[Slide 8]
Establishes IP as a Leader in Coated Papers
in North America
N.A. Capacity - Coated Papers
(Tons in Millions)
[Bar Chart]
Coated Groundwood Coated Freesheet
IP/Champion (2.3) 1.3 1.0
Consolidated Paper (1.9) 1.0 .9
Mead (1.3) .6 .8
Champion (1.2) .7 .5
IP (1.1) .6 .5
S.D. Warren (1.0) 1.0
UFS Ranked by % of Large Machines
Avg.
Mach % Large
# of Size Mach
Company Mach (000 Tons) (>250")
- -----------------------------------------------------
Champion 7 176 57%
1. S.D. Warren 6 171 50%
2 IP/Champion 14 165 50%
3. Mead 9 149 44%
IP 7 154 43%
4. Consolidated
Papers 17 109 6%
Source: Industry Reports, Company Information.
[Slide 9]
Strengthens IP's Low-Cost Industrial Packaging Business
N.A. Capacity--Containerboard
(Tons in Millions)
- -------------------------------------------------------------------------------
Medium Liner Board
- -------------------------------------------------------------------------------
Smurfit-Stone (7.5) 2.5 5.0
I/P Champion (4.7) .6 4.1
IP (4.3) .6 3.7
Weyerhaeuser (4.0) 1.4 2.6
Georgia-Pacific (3.6) .9 2.7
Temple-Inland (2.7) .5 2.2
- -------------------------------------------------------------------------------
Containerboard Ranked by % of Large Machines
- -------------------------------------------------------------------------------
Avg.
Mach % Large
# of Size Mach
Company Mach (000 Tons) (> 250")
- -------------------------------------------------------------------------------
IP 11 387 73%
1. IP/Champion 13 368 62%
2. Weyerhaeuser 13 306 54%
3. Georgia-Pacific 11 329 36%
4. Temple-Inland 8 339 25%
5. Smurfit-Stone(1) 39 191 18%
Champion 2 265 0%
- -------------------------------------------------------------------------------
(1) Pro Forma for St. Laurent Paperboard.
Source: Industry Reports, Company Information.
[Slide 10]
IP Already Has a Leading Position in Consumer Packaging
N.A. Capacity--Bleached Board
(Tons in Millions)
- -------------------------------------------------------------------------------
IP 2.5
Westvaco 1.6
Potlatch .6
Georgia-Pacific .3
Smurfit-Stone .3
- -------------------------------------------------------------------------------
(Pro forma St. Laurent Paperboard)
Bleached Board Ranked by % of Large Machines
- -------------------------------------------------------------------------------
Avg.
Mach % Large
# of Size Mach
Company Mach (000 Tons) (> 250")
- -------------------------------------------------------------------------------
1. IP 11.5 222 17%
2. Westvaco 8 203 13%
3. Potlatch 3 208 0%
4. Georgia-Pacific 2 170 0%
5. Smurfit-Stone(1) 2 155 0%
- -------------------------------------------------------------------------------
(1) Pro forma St. Laurent Paperboard.
Source: Industry Reports, Company Information.
[Slide 11]
Creates Substantial Margin Enhancement Opportunities in Distribution
Estimated 1999 Sales of Major North American Paper Distributors
(Dollars in Billions)
- -------------------------------------------------------------------------------
IP/Champion 7.3
Unisource (G-P) 6.6
Xpedx (IP) 6.5
Gould .9
Champion .8
WWF .8
RIS Paper .7
- -------------------------------------------------------------------------------
Source: Annual Reports, Company Information.
[Slide 12]
Broadens and Strengthens IP's Timberland Base
Timberland Holdings
(Acres in Millions)
- -------------------------------------------------------------------------------
International North America
- -------------------------------------------------------------------------------
IP/Champion (14.8) 2.3 12.5
IP (8.3) .8 7.5
Weyerhaeuser (6.6) .2 6.4
Champion (6.5) 1.5 5.0
Georgia-Pacific (4.7) -- 4.7
Hancock (3.3) .4 2.9
Plum Creek (3.2) -- 3.2
- -------------------------------------------------------------------------------
Note: Excludes cutting rights in Canada.
Source: Annual reports, Company information
[Slide 13]
Positions IP as a Leader in Wood Products
[Bar Chart]
North American Lumber Production Capacity
(Billion Board Feet)
- -------------------------------------------------------------------------------
Weyerhaeuser 5.8
IP/Champion 4.6
IP 2.9
Georgia-Pacific 2.7
Canfor 2.6
Champion 1.7
West Fraser 1.6
- -------------------------------------------------------------------------------
Source: 1999 Annual Reports, Annual Information Forms
[Slide 14]
Champion has Completed a Major Investment and Restructuring Program
o Since 1988 Champion invested nearly $8.6 billion
- $3.3 billion strategic capital spending
- $4.8 billion maintenance
o Major restructuring completed
- $0.8 billion in divestitures
- $1.0 billion in write-offs
- Work force reduced by 11%
- Profit improvements of $400 million achieved by end of 1999
o Easy integration and limited ongoing capital requirements
[Slide 15]
$425 Million of Annual Merger Benefits is Compelling and Achievable
o Merger benefits identified in the areas of SG&A, logistics, manufacturing
and purchasing
[Bar Chart]
Comparison of Merger Benefits as a % of Target Sales
- -------------------------------------------------------------------------------
Realized Announced
- -------------------------------------------------------------------------------
IP/Federal Paperboard 9.9% 5.2%
IP/Union Camp 9.4% 6.7%
IP/Champion 8.1%
Abitibi-Consolidated/Donohue 7.0%
Jefferson Smurfit/Stone-Container 6.6%
Norske Skog/Fletcher Paper 6.3%
UPM-Kymmene/Champion International 6.2%
Stora Enso/Consolidated Paper 6.0%
Smurfit-Stone/St. Laurent Paperboard 5.5%
Weyerhaeuser/MacMillan Bloedel 5.3%
- -------------------------------------------------------------------------------
[Slide 16]
IP will Divest More Than $3 Billion in Assets
o Champion acquisition creates opportunity to accelerate divestitures while
maintaining Union Camp pooling
o The assets to be sold are not strategic to IP's core businesses
o Will complete $3+ billion program over next 12-18 months
o IP's strategy is to increase our focus and redeploy capital into our
strategic businesses
[Slide 17]
$8.5 Billion Transaction Financed Primarily with Cash
(Dollars in Billions)
- -------------------------------------------------------------------------------
Price per Share ($ per share) $64.00
Fully Diluted Shares Outstanding (MM) 97.1
Equity Purchase Price $6.2
Enterprise Value(1) $8.5
Enterprise Value/2001 EBITDA Including Merger Benefits 4.1x
IP Shares Issued (MM)(2) 51.1
% of Pro Forma Shares Outstanding(3) 11.0%
- -------------------------------------------------------------------------------
(1) Excluded Break-up Fee of $210 million
(2) Based on a closing price for IP of $39.94 per share.
(3) Based on 414.48 million shares outstanding.
[Slide 18]
Transaction Accretive to IP EPS in 2001
o Assumes 50% of merger benefits achieved in 2001
(Dollars in Billions)
- -------------------------------------------------------------------------------
2001E
- -------------------------------------------------------------------------------
Pro Forma Sales $38.2
Pro Forma EBITDA 7.8
Pro Forma EBIT 5.9
IP Consensus EPS ($ per share) $5.61
IP Pro Forma EPS ($ per share) $6.16
% Accretion 9.9%
- -------------------------------------------------------------------------------
Note: Impact of proposed divestitures not included.
Source: First Call, Industry Research
[Slide 19]
Strong Balance Sheet Allows for Future Financial Flexibility
o With strong earnings, merger benefits and asset sales IP's credit will
remain strong
Selected Pro Forma Financials--Assumes $3 Billion of Divestitures
(Dollars in Billions)
- -------------------------------------------------------------------------------
IP IP PRO FORMA
12/31/1999 12/31/1999
- -------------------------------------------------------------------------------
Total Assets $30.3 $36.0
Total Debt 8.4 12.1
Total Equity(1) 13.7 15.7
----- -----
Total Capital $22.1 $27.9
Total Debt/Capital 38.1% 43.5%
- -------------------------------------------------------------------------------
(1) Includes minority interests and preferred securities.
Note: IP pro forma Champion acquisition and divestitures (at book value)
[Slide 20]
Summary
o IP improves leadership positions in our three strategic businesses
o $3+ billion divestiture program accelerated
o Increases IP's focus - reallocation into core businesses
o Superior proposal for Champion shareholders
o Creates significant value for IP shareholders
[Slide Presentation Narrative]
Introduction [CT]
o We sent to you a presentation outlining the details of IP's offer to
purchase Champion International. These slides are also posted on our web
site.
o This morning John Dillon, Chairman and CEO, and John Faraci, Senior VP
Finance and CFO, will cover the highlights of the offer and answer your
questions.
Good morning, today we announced that IP has made an offer to purchase Champion
for $64 per share. I assume most of you have seen our press release. [JTD] |X|
Our Board and I believe that a combination of IP and Champion is compelling and
would create significant value for our shareholders.
o Champion fits extremely well with IP.
o The acquisition will increase IP's focus and will add to our three core
businesses: Printing Papers, Packaging and Timberlands & Building
Materials.
o The transaction will also enable us to accelerate a major divestiture
program, involving more than $3 billion of assets, and re-deploy the
proceeds into our core businesses.
o There are tangible financial benefits to IP shareholders. The acquisition
creates $425 million in merger benefits, is accretive to EPS in the first
year and across the cycle and earns its cost of capital.
o IP's offer provides superior value to Champion shareholders compared with
UPM's proposal and we are committed to concluding a transaction to bring
these two companies together.
Let me describe the offer that IP has made for Champion [JTD]
o Our offer of $64 per CHA share comprises $43 in cash and $21 in IP stock.
o The offer is fully financed and we do not anticipate any significant
anti-trust issues.
o It is subject to Champion Board, Champion shareholder and standard
regulatory approvals.
o IP will account for the merger using purchase accounting.
IP's offer is clearly superior to UPM's proposal [JTD]
o Our offer price is nearly 25% above yesterday's closing price for Champion
and more than 20% higher than the implied value of the UPM proposal.
o Not only does our offer provide superior value, it gives Champion
shareholders certainty that our offer is really worth $64 per share.
o We are offering a significant amount of cash - more than two thirds of our
offer.
o We are also providing 10% downside protection on the stock component.
o And IP is a Dow 30 company with a market capitalisation of $16.6 billion
and a highly liquid public float.
The acquisition of Champion is an important strategic step for IP [JTD]
o Together with Champion, IP will have stronger positions in its core
businesses.
o Champion significantly enhances our printing papers operations and
complements our timberland, wood products and industrial packaging
operations.
o Our strategy is to continue to build leading positions in our core
businesses. The acquisitions of Federal, Union Camp and more recently
Shorewood are all consistent with this.
o By focusing our resources on our core strategic businesses, we believe we
can create substantial value for IP shareholders.
Let me run through what Champion brings to IP and why it complements IP so well
[JTD]
o Champion will strengthen IP's uncoated free-sheet system by adding two
excellent facilities. Courtland gives IP another world class uncoated
free-sheet mill in North America to complement Eastover and Riverdale.
o This acquisition will transform IP into a leader in coated papers in North
America with high quality assets that produce a broad portfolio of coated
free-sheet and groundwood products.
o IP is a leader in the industrial and consumer packaging businesses with
its system of low-cost mills and converting operations. Roanoke Rapids
adds another large, efficient mill to our industrial packaging system.
o Adding Nationwide builds on IP's leading position in paper distribution
and creates substantial margin improvement opportunities.
o Champion will bring us over 5 million acres of U.S. timberlands and
attractive wood products operations. We will have 12.5 million acres of
timberlands in North America with over 75% in the premier growing regions
in the South.
o Champion's scale and low-cost assets in Brazil will provide a growth
platform in an attractive market and substantial holdings of fast growing
plantation forests.
o The combination of IP and Champion will extend our leadership and low-cost
positions and strengthen our core businesses.
IP will undertake a major divestiture program totalling over $3 billion,
allowing us to re-deploy capital into our strategic businesses [JTD]
o The Champion acquisition would create the opportunity for us to accelerate
a comprehensive divestiture program while maintaining the pooling
accounting treatment for the Union Camp merger
o We intend to sell in excess of $3 billion of assets that are not strategic
to IP's core businesses over the next 12 to 18 months.
o With the combination of the divestiture program and the acquisition of
Champion, IP will dramatically increase its focus and re-deploy a
substantial portion of its capital into our strategic businesses.
o Let me hand you over to John Faraci, who is going to review some of the
financial aspects of the transaction.
The fact that Champion has completed a major investment and restructuring
program makes it easier for us to integrate Champion's businesses [JF]
o Champion has invested heavily to upgrade the quality and capacity of many
of its major facilities over the last decade.
o Champion has substantially completed a major restructuring program, which
involved exiting non-core and underperforming assets, reducing its work
force by 11% and achieving $400 million of profit improvements.
o Having studied Champion's business closely, we are confident that once we
complete the integration we will be able to limit ongoing capital
expenditures on the Champion assets to significantly below D&A.
We have identified $425 Million of annual merger benefits that we are confident
we can achieve [JF]
o The similar geographic and business profiles of the two companies will
create real opportunities to substantially increase profitability.
o We have built up a detailed estimate of the merger benefits on a line by
line basis for each business based on our actual experience with the Union
Camp and Federal mergers.
o From our recent experience we expect that the merger benefits will come in
the areas of SG&A reduction, production scheduling efficiences, fibre
supply optimisation, purchasing and logistics.
o Our estimate of $425 million per year of merger benefits is less than we
actually achieved on Union Camp and Federal measured as a % of sales
o We believe $425 million is readily achievable within a two year time
frame. This is in addition to Champion's $285 million profit improvement
program and the $1.8 billion profit improvement program that IP is
currently implementing.
o IP has a proven track record of extracting substantial cost savings from
strategic acquisitions.
o The financial benefits of combining IP and Champion are substantial and
represent tangible value for IP shareholders.
This is a significant transaction primarily financed with cash [JF]
o The offer price represents $8.5 billion in enterprise value and 4.1x 2001
EBITDA including the merger benefits.
o We have structured our offer to include a substantial portion of cash to
avoid equity dilution for our shareholders and provide certainty of value
for Champion shareholders.
The transaction is accretive to IP's earnings per share in 2001 [JF]
o An acquisition of Champion would be accretive to IP shareholders in 2001
assuming 50% of the merger benefits are realised.
o Based on consensus estimates for IP and Champion, the transaction would be
10% accretive to IP EPS in 2001, without taking into account the
divestitures.
o IP estimates that the transaction would be accretive to EPS across the
cycle taking into account the merger benefits and the divestitures.
o In addition, the transaction would earn its cost of capital and improve
IP's ROI across the cycle.
Our balance sheet will remain strong, allowing for future financial
flexibility [JF]
o We are committed to maintaining IP's financial flexibility and a strong
investment grade rating.
o With the expected increase in earnings and cash flows in 2000/2001, the
anticipated merger benefits from the combination and the divestiture
program, we believe that our balance sheet will remain strong.
This is a compelling combination that creates substantial value for both IP and
Champion shareholders [JTD]
o We believe that this is an excellent acquisition opportunity that is
consistent with IP's strategy, creates substantial value for our
shareholders and enhances IP's position as a leader in the industry.
o Given the quality of its assets, what we see as a cultural fit, and the
product and geographic profiles of the two companies, Champion is a
perfect match for IP.
o It would enable us to accelerate a $3+ billion divestiture program and
re-deploy the proceeds into our core businesses.
o The merger benefits are compelling at $425 million per year. We have a
track record of integrating acquisitions and have outperformed our merger
benefit estimates significantly in past mergers
o The acquisition will be accretive to IP EPS and will earn its cost of
capital.
o We are making an attractive offer to Champion shareholders, which gives
them a substantial premium and a high degree of certainty with respect to
the value of our offer.
o I am confident that IP will be a stronger, more focused and more
profitable company following this acquisition.
o This is a strategic acquisition for IP and we are committed to bringing
the combination to a successful conclusion.
These materials contain certain statements that are neither reported financial
results nor other historical information. These statements are forward-looking
statements within the meaning of the safe-harbor provisions of the U.S. federal
securities laws. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed in the forward-looking statements. Many of these risks and
uncertainties relate to factors that are beyond the companies ability to control
or estimate precisely, such as future market conditions, the behavior of other
market participants and the actions of governmental regulators. These and other
risk factors are detailed in the two companies' SEC reports. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of these materials. The companies do not
undertake any obligation to publicly release any revisions to these forward-
looking statements to reflect events or circumstances after the date of these
materials.
Investors and security holders are advised to read the proxy statement/
prospectus regarding the proposed business combination transaction referenced
in the foregoing information, when it becomes available, because it will contain
important information. Investors and security holders may obtain a free copy
of the proxy statement/prospectus (when available) and other related documents
filed by International Paper Company at the Commission's website at
www.sec.gov. Additional information concerning the proposed business combination
may also be found on the International Paper Company website,
www.internationalpaper.com, or by contacting Judy Pirro of International
Paper Company at (914) 397-1667.
