Georgia-Pacific (and sheathing)
Sheathing.
The Merriam-Webster dictionary defines sheathing as “the action of one that sheathes something.”
Thanks, Merriam-Webster, we were afraid that you were going to be too specific.
All jokes aside, sheathing has played and most likely still does play a fairly important role in your life, believe it or not.
Specifically, in the far, wide and deep real estate development sector, buildings, homes and other livable structures at some point (predominantly in the early stages of development) or another usually receive a protective layer on top of the wood or other material in the building or development process that helps preserve the integrity and look of the building or structure itself.
However, according to some sources the applications of sheathing aren’t merely limited to the exterior of complexes but can also be used in the inside of the aforementioned structures. For example, sheathing can be used in relation to flooring, roofing shingles and a few others as well.
This article isn’t meant to go on and on about the exciting topic of sheathing because oddly enough, the focus of this article actually has nothing much at all to do with sheathing.
Sorry about that, we just find sheathing super interesting.
In all actuality, this article is meant to be a piece regarding why Georgia-Pacific (a private company owned by Koch Industries) should acquire what would have been one of Dunder Mifflin’s most brutal competitors, publicly traded International Paper (NYSE: IP).
First, let’s get a bit more familiar with Georgia-Pacific.
About Georgia-Pacific
Yes, sheathing is a big part of the company’s business model, however, GP also produces and distributes copious amounts of paper products as well as other related products.
For instance, the company sells paper towel and napkin dispensers and the paper within the dispensers for venues like restaurants, universities and many, many other places where people simply convene. In addition to paper towels, the company also owns a few brands that sell paper-related products that many of our viewers are likely familiar with, such as toilet paper brands Angel Soft and Quilted Northern along with paper towel specialty brands Brawny and Sparkle, not to mention the Dixie brand which manufacturers and distributes paper plates and cups.
Evidently, sheathing has still proven itself to be an integral part of Georgia-Pacific’s business model, however, paper and pulp-related products take the cake in terms of ubiquity.
Although the company itself is private, therefore making it rather difficult to value the company and gauge the value the market places on this company, the price at which the company was originally bought by Koch Industries can act as a sort of proxy.
Koch Industries acquired Georgia-Pacific for $21 billion, which implies that today, GP is certainly worth at least that amount, especially since some report that the company’s total annual revenue alone is around $17 billion.
Let’s talk about why we think one of its largest competitors in the paper industry, Memphis-based International Paper, should consider putting itself up for sale to Georgia-Pacific.
About International Paper
Make no mistake about it, International Paper is one of the largest paper producers and manufacturers in the world.
As far as subsidiaries go, the company is home to paper giant Hammermill Paper Company, along with other large paper companies such as Union Camp Corporation, Champion International, APPM, Temple-Inland, among others.
Incidentally, International Paper, to a certain extent, sells many of the same products that Georgia-Pacific does, making them, in more arenas than one, direct competitors.
Truthfully, we’re not trying to be funny or make light of International Paper, but we view the company itself as a modern day Dunder Mifflin.
You know, the fictitious company from the famed television series, The Office?
Why would we even say that?
Pictured above is Kevin Malone from The Office
While to our knowledge Kevin Malone, the accounting extraordinaire, isn’t currently a member of International Paper’s accounting team, we make the comparison given the company’s relatively unexciting, flat financials, especially given that its total annual revenue over the last few years has been mostly flat (excluding a dip in 2020, which was to be somewhat expected) along with its fair trailing twelve month (TTM) net profit margin and just about average TTM returns on assets and investment as well.
Should Georgia-Pacific Acquire International Paper?
It’s a little strange, right?
Why would an established, well performing, diversified paper-focused company such as Georgia-Pacific want to wholly acquire a seemingly average, but nevertheless dominant competitive operator in the paper space?
It is our thinking that it is in International Paper’s best interest, furthermore, the interest of its entire shareholder base and its other stakeholders that it put itself up for sell for a few reasons, one of which includes the fact that we as a society are exponentially drifting closer and closer into a completely paperless world, whether we like it or not.
This being the case, it makes sense to us that International Paper’s executive team should really consider potentially making a great escape by putting itself up for sale, as it would allow a proven innovator (Georgia-Pacific in this scenario) to take the company over and integrate it and its associated intellectual property (IP) and capabilities into a better overall company and future for consumers.
Briefly touching on shareholders, this sort of hypothetical transaction would make a lot of financial sense to International Paper’s shareholder base, from our vantage point.
With the company’s share price down nearly 33% over the last five year’s span of time, it is our opinion that International Paper’s shareholder base ought to be able to salvage some sort of return for its previous and current devotion to holding shares in the company’s stock (NYSE: IP).
While there will always be concerns, and rightfully so, regarding one company simply having far too much pricing power, this transaction could allow Georgia-Pacific the tools and resources to better consumer experiences overall while having the ability to taper down or keep prices at similar, current levels.
Additionally, for those who are concerned about a company like Georgia-Pacific buying out International Paper and subsequently jacking up the prices within the paper industry, the pulp and paper manufacturing industry is well known for being highly regulated in a variety of aspects, which could potentially allay many of the worries some would initially and rightly maintain.
All things considered, as we’ve written other similar hypothetical, scenario-driven articles in the past, there is a lot of technology and resources that could be leveraged in order to better all user’s experiences with not only paper, but also the other products and innovations that both GP and International Paper have crafted throughout the years, such as in packaging, building and of course, one can’t forget sheathing.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.