Two Manhattanville Road
International Paper Company (IP) is the world's largest producer of paper, packaging, and forest products. The firm also operates a distribution unit which transports its own products and those of other companies and various related specialty product businesses ranging from imaging products to nonwoven fabrics. The company began as a major player in its core industry and expanded through mergers, acquisitions, and product development. IP's manufacturing operations span 28 countries, and the company exports to more than 130 nations.
Established on January 31, 1898, the firm resulted from a merger of 18 paper and power companies, with 20 mills throughout five northeastern states and timberlands ranging as far north as Canada. The new company had one million acres of woodlands, and streams running through the properties were used to run the mills with hydroelectric power. At the turn of the century, the mills provided 60 percent of U.S. newsprint. In 1903, in order to enhance its research and development efforts, the company opened the Central Test Bureau in Glens Falls, New York.
The company's power interests played a dominant role in its early years. As household electricity demand grew in the 1920s, the firm established large hydroelectric plants and power companies. At one time, it produced enough electricity to light all of New England, and most of Quebec and Ontario. In 1928 International Paper & Power Company was organized in Massachusetts to acquire International Paper. IP continued to operate as a subsidiary of International Paper & Power. In 1935 the United States passed the Public Utility Holding Act, making it illegal for an organization to run both an industrial firm and a power company. The law signified the end of International Paper's involvement in the energy and power business. Instead, the company began to focus on key areas such as paper and packaging.
The company expanded into the southern United States in the 1920s and 1930s, primarily because trees could be grown more quickly and in greater volume than they could in the North. It also maximized its use of the trees through the kraft process, which involved use of a very strong pulp to manufacture packaging materials.
In June 1941 a new company was incorporated to acquire the assets of International Paper & Power Company. The new parent company was named International Paper Company to reflect the change from a paper and power company to a manufacturer devoted solely to paper. During World War II, International Paper did what it could to support the war effort. Its contributions included the development of nitrate pulp for use in explosives and the development of a waterproof board called V-board--victory board--which was used to make boxes to send food and other supplies to the troops. The new technology, along with the wartime inventions of other manufacturers, led to increased competition after the war. As a result, IP began to invest more capital in research and development. Shortly after the war, it established the Erling Riis Research Laboratory in Mobile, Alabama.
An emphasis on packaging products also characterized the firm's progress in the 1940s. In December 1940 it acquired the Agor Manufacturing Company, which included three subsidiaries and four container plants in Illinois, Kansas, Massachusetts, and New Jersey. In June 1941 IP merged the Southern Kraft Corporation with its main business. Previously a subsidiary, Southern Kraft owned eight kraft board and paper mills in the southern United States. IP also bought the assets of a shipping-container maker, the Scharff-Koken Manufacturing Company.
In 1947 IP merged with Single Service Containers Inc., a manufacturer of milk containers, and in 1952 it founded the International Paper Company Foundation, a nonprofit organization developed to support charitable, educational, and scientific efforts. IP acquired the capital stock of a specialty coated paper manufacturer, A.M. Collins Manufacturing Company, of Philadelphia, in 1955. In 1957 the latter merged with IP. In 1958 IP bought Lord Baltimore Press, Inc., a Maryland manufacturer of cartons and labels.
IP's Canadian subsidiary, Canadian International Paper Company, also made its share of acquisitions in the 1950s. These included Brown Corporation in 1954; Hygrade Containers Ltd. in 1955; and Anglo American Paper Company, Mid-West Paper Ltd., Vancouver Pacific Paper Company, and Victoria Paper Company in 1959.
During the following decade, new technology improved both product design and manufacturing processes. In 1962, for example, IP began using computers to control paper machines at its mill in Georgetown, South Carolina. A year later, it introduced polyethylene-coated milk cartons. In addition to new products, the 1960s presented IP with challenges, including development of new production and management techniques. Since 1943 IP had been headed by the Hinman family; John Hinman was chief executive from 1943 to 1962, and his son, Edward B. Hinman, held the post from 1966 to 1969. Various associates appointed by the elder Hinman ran the company from 1962 to 1966.
During the 1960s IP continued to grow internally and took giant leaps toward diversification--many of them in haste--and learned that bigger is not always better. IP had emphasized production efficiency as a means of increasing output for most of the century. IP's production muscle came at the expense of marketing expertise, which lagged. The production emphasis led to overexpansion of paper plants, which in turn resulted in low profit margins. To increase profitability, IP diversified, with little success, into areas as far-ranging as residential construction, prefabricated housing, nonwoven fabrics, consumer facial tissue, and disposable diapers. It also moved into lumber and plywood, but found equally little success in those areas. White paper, paperboard, and pulp still accounted for more than half of the company's sales during the early 1970s; converted paper products comprised one-third; lumber, plywood, and other building products totaled nine percent; and the remaining sales came from real estate, packaging systems, and nonwoven fabrics.
By 1971 IP's long-term debt, which had been almost nonexistent in 1965, reached $564 million. When Edward Hinman took over, the company's greatest asset was its large share of real estate, including 8 million acres that it owned and 15.5 million that it leased. In 1968 Hinman sought the help of Frederick Kappel, formerly chairman of AT&T. The two ran the company together, but after earnings declined by 30 percent in 1970, Kappel and a team of outside directors replaced Hinman the following year with Paul A. Gorman, another AT&T executive. Gorman faced the challenge of returning the company to profitability.
Gorman started the long-term task by setting up a $78 million reserve to cover write-offs of inefficient facilities; closing a specialty mill in York Haven, Pennsylvania; and closing various plants in Ecuador, Italy, Puerto Rico, and West Germany. In 1972 he also sold most of Donald L. Bren Co., a southern California house builder acquired in 1970, and Spacemakers Inc., a prefabricated-housing subsidiary. The company also sold its interest in C.R. Bard, Inc. a medical-equipment manufacturer.
From 1966 to 1972, IP had spent $1 billion to increase its paper-making and -converting capacity by 25 percent. During the early 1970s the paper industry headed toward cyclical recession. IP laid off seven percent of its employees. Gorman felt that the firm needed more financial control, and saw to it that decisions made by the company's manufacturing groups were reviewed from a financial, marketing, and manufacturing perspective. In addition, all projects had to show a minimum after-tax profit of 10 percent. Ailing plants were improved, sold, or shut down. Gorman also reorganized international operations on a product line basis. His efforts were successful. Earnings of $69 million in 1971 were the lowest in ten years, despite record earnings just two years earlier, but they jumped 30 percent the first six months of 1972.
In 1973, J. Stanford Smith joined IP as vice-chairman. Previously a senior vice-president with General Electric, Smith eventually would replace Gorman as chairman. Smith felt that one way to increase profitability was to develop natural resources on the company's land. He devised a plan to purchase General Crude Oil Company, which IP did in 1974 for $489 million. The business was unsuccessful, however, in locating major oil or gas deposits on IP's land. Five years later, in order to raise capital for acquisitions and internal growth, the company sold General Crude Oil's oil and natural gas operations to Gulf Oil Corporation for $650 million. In addition, IP sold a Panama City, Florida, pulp and linerboard mill to Southwest Forest Industries for $220 million.
Between 1975 and 1980, IP's operating profits were mediocre. Again it turned to new management for help, and in 1978 Edwin Gee stepped in as chairman. A chemical engineer, Gee recognized that many of the company's 16 pulp and paper mills--all built in the 1920s and 1930s--were wasting labor and energy. Immediately, he instituted a $6 billion program to modernize the plants. Gee's goal was to turn the world's largest paper company into one of the lowest-cost producers of white paper and packaging materials, thus making it one of the most profitable papermakers as well.
To raise money for Gee's plan IP sold its remaining interest in General Crude Oil Company for $763 million and used the profits to buy Bodcaw Company of Dallas in 1979. Bodcaw added a highly efficient linerboard mill in Pineville, Louisiana, and 420,000 acres of prime timberland. In 1981 IP sold Canadian International Paper for US$900 million. In addition, Gee increased the research-and-development budget and reduced IP's labor force by 20 percent. By 1982 he had raised US$2 billion, aided by sales of land, timber, and other subsidiaries.
After determining that only two of the six major packaging mills were operating efficiently, Gee sold one mill, shut down three others, and invested $600 million in the Mansfield, Louisiana, mill. In April 1981 IP unveiled a new southern pine plywood and lumber manufacturing plant in Springhill, Louisiana. The $60 million facility, the brainchild of Gee, featured the latest computerized process controls and supplied the container board mill in Mansfield plus paper and pulp mills at Camden, Arkansas, and in Bastrop, Louisiana.
In the same year, John Georges became chief operating officer. His solution to IP's production problems was not to build new plants but to remodel existing facilities. The company also spent $500 million on remodeling a Georgetown, South Carolina, mill, changing its product focus in the process. Instead of brown linerboard, a cyclical product, part of the plant was set up to make white papers. The white paper business was to offer a faster-growing and more stable market.
In addition, Georges began a $350 million project to convert another mill in Mobile, Alabama. The 60-year-old facility, which housed the company's last remaining newsprint machine, was also remodeled to produce white papers in 1985, thus marking the end of the company's long-standing newsprint business. In 1987, newsprint prices began a steady decline.
A recession in the early 1980s meant further delays but the investments began to bear fruit in the mid-1980s. As a result of new automation, IP's production costs decreased 11 percent between 1981 and 1987 and its mills were able to use 25 percent less energy. Georges was named chairman in 1985, succeeding Gee.
The appointment had been preceded in 1984 by a decline in linerboard and pulp prices and a 14-year low in earnings. The white-paper market seemed to be one of the few that was profitable, so Georges hired a team of scientists and technicians to promote business in that area. Their work led to a major acquisition in 1986: Hammermill Paper Company. The $1.1 billion purchase increased IP's white-paper capacity by 750,000 tons and provided the technology to produce premium paper lines. Georges also reduced the number of salaried employees from 12,000 in 1981 to 9,200 in 1988, and streamlined management. Under his leadership, the firm also acquired Anitec Image Technology Corporation, maker of photographic film, papers, and darkroom chemicals; Avery Corporation, a Chicago-based envelope manufacturer; and Kendall Company's nonwoven fabrics division. As a result, profits improved in 1988 and set a record in 1989.
In addition to the company's recovery, however, it also weathered several crises. These included a 1984 fire that destroyed its Nacogdoches, Texas, plywood-manufacturing plant, causing $32.5 million in damages. The facility reopened in 1986 after being equipped to produce oriented-strand board. In 1987, to protest inadequate wages and benefits, 2,200 workers went on strike at paper mills in Alabama, Maine, Mississippi, and Wisconsin.
Under Georges's leadership, the watchword at IP in the late 1980s and early 1990s was diversity, both in geography and product mix. His aim was to lessen the firm's vulnerability to the cyclical nature of its core paper, packaging, and forestry operations. Many of the international acquisitions that Georges pursued were aimed at expanding IP further into the area of specialty products, which generally produce higher margins. These products included photographic paper and films, specialty industrial papers, molded-wood products, laminated products, and nonwoven fabrics such as disposable diapers. Although similar in some ways to the firm's diversification of the 1960s, this round of expansion proved more successful.
Heading into its overseas spending spree, International Paper already owned box-manufacturing facilities in Italy, the Netherlands, Spain, Sweden, and the United Kingdom. In 1989 it acquired two major European manufacturers, Aussedat-Rey, the second-largest paper company in France, and the Ilford photographic-products division of Ciba-Geigy. In 1990 IP bought Germany's Zanders Feinpapiere AG, a high-quality coated-paper company, and the French operations of Georgia-Pacific Corporation.
The following year, in addition to bolstering its domestic base with the purchase of two U.S. paper companies--Dillon Paper and Leslie Paper--and its European holdings with the acquisition of Scaldia Paper BV of the Netherlands and the packaging equipment business of Dominion Industries Ltd., IP gained a presence in the Pacific Rim through a $258 million purchase of a 16 percent interest in the leading New Zealand forest-products company, Carter Holt Harvey Ltd. (CHH). IP increased its stake in CHH in 1992 to 24 percent by investing an additional $298 million. In addition to its dominance of its home market, CHH was a major exporter of forest products to Australia and Asia. Also in 1992, IP paid $209 million for an 11 percent stake in Israel's Scitex Corporation Ltd., a world leader in color electronic-imaging equipment. The stake was increased to 12 percent the following year. The company also purchased Kwidzyn from the government of Poland for $150 million and the promise to invest $75 million more in the firm, the country's largest white-paper manufacturer and operator of one of the most modern paper mills in Eastern Europe.
IP's diversification program appeared to pay off in the early 1990s when the paper industry encountered one of its worst cyclical downturns in 50 years. While competitors Boise Cascade Corp. and Champion International Corp. posted huge losses, IP continued to report profits, albeit smaller than those of 1988-90. Sales in 1992 hit a record $13.6 billion, although earnings were reduced substantially by a $263 million restructuring charge for the closure and consolidation of 20 underperforming mills and sales offices worldwide.
IP continued to expand aggressively in the mid-1990s. In 1994 its distribution unit picked up two paper-distributing companies in Mexico, while in the area of liquid packaging, a new plant was built in Brazil and a joint venture was formed in China to build and operate a plant near Shanghai. IP made its biggest purchases yet in 1995, however. The firm spent $1.15 billion to attain majority control of New Zealand-based Carter Holt Harvey Ltd. and $64 million to acquire DSM, a producer of ink and adhesive resin based in the Netherlands. IP attempted to acquire Holvis AG, a Swiss fiber and paper company, for $422 million but was rebuffed by the Holvis board. Late in 1995 IP announced a $3.6 billion purchase of Federal Paper Board Co., based in Montvale, New Jersey, and the 15th-largest paper company in the United States. Federal Paper specialized in bleached paperboard used for cigarette cartons, laundry detergent, and other consumer products, and added to IP's packaging operations would give IP about one-third of the bleached board market.
Fittingly, the Federal Paper acquisition was consummated nearly simultaneously with the announcement of Georges's retirement as chairman and CEO, both of which occurred in early 1996. Georges's diversification program had increased non-U.S. sales to 30 percent of total sales by 1994. And while IP's core paper, pulp, and paperboard businesses accounted for 78 percent of sales in 1988, they accounted for only 52 percent of sales by 1994. During the same period, IP's specialty products' share of sales increased from just 3.7 percent to 17.3 percent.
John T. Dillon, previously president and COO, succeeded Georges as chairman and CEO of International Paper. Although Dillon inherited a company in an enviably strong position, some observers felt that he might make some moves to refocus IP on its core businesses. IP had already exited the envelope business late in 1995 and divestments of additional specialty businesses were seen as possible, in particular given the $816 million in long-term debt IP took on as part of the Federal Paper deal.
Principal Subsidiaries: Anchor/Lith-Kem-Ko, Inc.; Federal Paper Board Co.; Ingram Paper Company; International Paper Realty Corp.; International Pulp Sales Company; IP Forest Resources Company; IP Timberlands, Ltd.; Ilford Inc.; Masonite Corporation; International Paper Company Pty. Limited (Australia); Anitec Image International B.V. (Belgium); International Paper (Europe) S.A. (Belgium); Veratec S.A. (Belgium); International Paper Canada, Inc.; Productora de Papeles S.A. (Colombia; 36.16%); Societe Mediterraneenne d'Emballages (France); Societe Normande de Carton Ondule (France); Hammermill Paper GmbH (Germany); Societe Guadeloupeene de Carton Ondule (Guadeloupe); International Paper (Asia) Limited (Hong Kong); International Paper USA Ltd. (Israel); Scitex Corporation Ltd. (Israel; 12%); International Paper Italia S.p.A. (Italy); International Paper Company (Japan) Ltd.; IPI Corporation (Japan; 51%); Veratec Japan, Ltd.; International Paper Korea Ltd. (80%); Societe Martiniquaise de Carton Ondule (Martinique); Akrosil Europe B.V. (Netherlands); Carter Holt Harvey Ltd. (New Zealand; 50.1%); Zaklady Celulozowa-Papierniecze S.A. w Kwidzynie (Poland); Cartonajes International, S.A. (Spain); Industrias De Tableros Y Derivados De La Madera, S.A. (Spain); International Paper (Espana), S.L. (Spain); International Paper Company (Europe) Limited (Switzerland); International Paper Taiwan Ltd; Envases Internacional S.A. (Venezuela; 51%).
Principal Divisions: Akrosil; Arizona Chemical; Bagpak; Building Materials Distribution; Bulkley Dunton JB Papers; Coated Papers Division; Containerboard Division; Dillard Paper Company; Dixon Paper Co.; Folding Carton Division; GCO Minerals Co.; Hammermill Papers; Imaging Products; International Paper-Bleached Board; International Paper-Distribution Group; Label Division; Masonite; Nevamar; Nicolet; Kraft Paper; Leslie Paper; Liquid Packaging; Springhill Papers; U.S. Container; Uniwood; Wood Products.
Principal Operating Units: Distribution; Forest Products; Printing Papers; Packaging; Specialty Products.
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