Sylvamo Spin-Off: Searching For Value In Small-Cap Event-Driven Equities

July 6, 2022

On October 1st, 2021, International Paper Company completed the spin-off of Sylvamo Corporation, International Paper’s global printing papers business.

Shareholders received 1 share of Sylvamo Corporation for every 11 shares of International Paper. International Paper initially retained a 19.9% stake in the company but according to the latest 10-Q filing International Paper sold part of this stake and as of April 2022 owns 10.5% of Sylvamo Corporation.

Sylvamo is a global uncoated papers company with a broad portfolio of brands and low-cost, large-scale paper mills located and serving Europe, Latin America, and North America. The company produces mainly uncoated freesheet (“UFS”) for paper products.

Based on the company’s guidance for FY 2022, Sylvamo aims to achieve an annual Adjusted EBITDA of approximately $750 million and $170 million in free cash flow (excluding Russia, where the company announced it will suspend operations).

Recently (on April 22nd, 2022) Company announced that its board of directors adopted a limited-duration shareholder rights plan to protect the interests of all shareholders. This happened after Atlas Holdings confirmed that it acquired nearly 14% percent of Sylvamo’s outstanding shares.

Last year Atlas Holdings was involved in Verso Corporation which subsequently was acquired by BillerudKorsnäs AB.

On May 19th, 2022, Sylvamo initiated and declared a quarterly dividend of $0.1125. This would provide an annual dividend yield of 1.5% percent.

The company also announced a new share repurchase authorization to acquire up to $150 million of the company’s shares.

Based on the current market share price of $30, the company has a market cap of $1,323 mil and is valued at an EV/EBITDA valuation multiple of x3.28 (Adjusted FY 2022 EBITDA guidance).

Sylvamo is a small capitalization company so risks are larger compared to mid or large-cap companies, but we believe that given recent developments, the company’s shares could provide a large potential upside, especially in case of an acquisition by the strategic buyer.