xpedx, Unisource Merger Moves Forward

International Paper announced that distribution solutions businesses xpedx and Unisource Worldwide will merge under the terms of a definitive agreement that will result in the creation of a new publicly traded company. The agreements providing for the combination of the two businesses were signed by International Paper, parent company of xpedx, and by UWW Holdings, the holding company that owns Unisource and is owned by an affiliate of Bain Capital and by Georgia-Pacific, as well as certain of their affiliates.

Upon the expected completion of the merger in mid-2014, which is subject to certain closing conditions, the new company will have projected annual revenue in the range of $9 billion to $10 billion, and will have about 9,500 employees across more than 170 distribution centers in North America.

"This transaction provides excellent value for International Paper shareholders and is a unique opportunity for xpedx and Unisource to create a new company that is stronger, more competitive and able to provide even greater value to customers," said John Faraci, chairman and CEO of International Paper. "We anticipate the new company will generate synergies of about $200 million."

Mary Laschinger, president, xpedx, and senior vice president, International Paper, commented, "We're bringing together two well established distribution businesses to create a new company with the financial stability and strategic focus to strengthen and grow our core businesses. Combined, the new company will be even better positioned to provide the products, services and ideas to support our customers' businesses." She will serve as chairman and CEO of the new company.

The transaction will be accomplished through a Reverse Morris Trust structure. International Paper will indirectly contribute the assets of xpedx to a newly formed wholly owned subsidiary, xpedx Holding, in exchange for the stock of the subsidiary, a cash payment of approximately $400 million expected to be financed with new debt in the new company's capital structure, as well as the potential for an additional cash payment pursuant to an "earn-out" provision described below. International Paper will distribute shares of the new company to International Paper shareholders on a pro rata basis in a manner intended to be tax-free to International Paper and its shareholders.

Following the spinoff of the new company to International Paper shareholders, Unisource will immediately merge with and into the new company. In connection with the merger, the shares of Unisource will be converted into a number of shares of the new company such that, following the merger, approximately 51 percent of the shares of the new public company will be owned by International Paper shareholders, with the remaining approximately 49 percent of shares held by UWW Holdings.

The shares of the new company to be received by International Paper shareholders in the distribution will be registered with the Securities and Exchange Commission. The new company intends to apply to list its shares for trading on the New York Stock Exchange. UWW Holdings may request to register its shares of the new company with the SEC for resale beginning 180 days following the closing of the merger, pursuant to the terms of a registration rights agreement to be entered into between the new company and UWW Holdings.

In connection with the spinoff, the new company will prepare and file with the SEC a registration statement registering the shares to be distributed to International Paper's stockholders and containing information about the spinoff and the merger. The company expects to file the initial registration statement to start the SEC review process in the coming weeks.

To finance the cash payment to International Paper and refinance existing debt of Unisource, the new company has entered into a commitment with three banks for $1.4 billion of asset-backed financing. The new company's target debt-to-EBITDA ratio is expected to be in the range of 4-5.

In the sixth year following closing, International Paper will have the right to receive a one-time payment of up to $100 million in cash as an "earn-out." The earn-out amount will be calculated based upon the extent to which actual EBITDA of the new company in the third, fourth and fifth years following the closing exceed an agreed-upon target.

The new company's executive offices will be located in the greater Atlanta area. In addition, it will retain the two existing operational headquarters of the legacy companies in Loveland, OH, and Norcross, GA.