UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

SCHEDULE 14D-9

 

SOLICITATION/RECOMMENDATION
STATEMENT UNDER SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

TEMPLE-INLAND INC.

(Name of Subject Company)

 

 

 

 

TEMPLE-INLAND INC.

(Name of Persons Filing Statement)

 

 

 

 

Common Stock, $1.00 par value per share

(Title of Class of Securities)

 

 

 

 

879868107

(CUSIP Number of Class of Securities)

 

 

 

 

C. Morris Davis, Esq.
General Counsel
Temple-Inland Inc.
1300 MoPac Expressway South, 3^rd Floor
Austin, Texas 78746
Telephone: (512) 434-5800

(Name, address, and telephone number of persons authorized to receive notices and
communications on behalf of the person filing statement)

 

Copies to:

Daniel A. Neff, Esq.
Benjamin M. Roth, Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
(212) 403-1000

 

 

TABLE OF CONTENTS

 

 

Name and Address

 

The name of the subject company to which this Solicitation/Recommendation Statement on Schedule 14D-9 (together with any exhibits attached hereto, this “Statement”) relates is Temple-Inland Inc., a Delaware corporation (“Temple-Inland” or the “Company”). Temple-Inland’s principal executive offices are located at 1300 MoPac Expressway South, 3^rd Floor, Austin, Texas 78746. Temple-Inland’s telephone number at this address is (512) 434-5800.

 

Securities

 

The title of the class of equity securities to which this Statement relates is Temple-Inland’s common stock, par value $1.00 per share, including the associated rights to purchase shares of Series B Junior Participating Preferred Stock (“Rights,” and together with the Temple-Inland common stock, the “Temple-Inland Common Shares”), issued pursuant to the Rights Agreement, dated as of June 7, 2011, between Temple-Inland and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agreement”). As of July 2, 2011, there were 108,649,374 Temple-Inland Common Shares outstanding.

 

 

Name and Address

 

The name, business address, and business telephone number of Temple-Inland, which is the subject company and the person filing this Statement, are set forth in Item 1 above.

 

Tender Offer

 

This Statement relates to the tender offer by International Paper Company (“IP”) through Metal Acquisition Inc., a Delaware corporation and wholly owned subsidiary of IP (“IP Sub”), to purchase all of the outstanding Temple-Inland Common Shares at a price of $30.60 per share, net to the seller in cash, without interest and less any required withholding taxes. The tender offer is being made on the terms and subject to the conditions described in the Tender Offer Statement on Schedule TO (together with the exhibits thereto, the “Schedule TO”) filed by IP and IP Sub with the Securities and Exchange Commission (the “SEC”) on July 12, 2011. The value of the consideration offered, together with all of the terms and conditions applicable to the tender offer, is referred to in this Statement as the “Offer.”

 

IP has stated that the purpose of the Offer is to acquire control of, and the entire equity interest in, Temple-Inland. IP has indicated that it intends, as soon as practicable after the completion of the Offer, to seek to consummate a merger of Temple-Inland and IP Sub (or one of IP’s other subsidiaries) (the “Second-Step Merger”). IP has also stated in the Schedule TO that it may nominate, and solicit proxies for the election of, a slate of nominees for election at Temple-Inland’s 2012 annual meeting of stockholders (the “Temple-Inland 2012 Annual Meeting”). In addition, whether or not IP proposes a merger or other business combination with Temple-Inland and whether or not its nominees are elected at the Temple-Inland 2012 Annual Meeting, the Schedule TO states that IP intends, as promptly as practicable after completion of the Offer, to seek maximum representation on the Board of Directors of Temple-Inland (the “Temple-Inland Board” or the “Board”) and, promptly after the consummation of the Offer, to request that some or all of the current members of the Temple-Inland Board resign and that IP’s designees be elected to fill the vacancies so created.

 

The Offer is subject to numerous conditions, which include the following, among others:

 

 

 

In addition, IP is not required to consummate the Offer and may terminate or amend the Offer if at any time before the expiration of the Offer any of the following conditions exist, which conditions may be asserted by IP or IP Sub in their sole discretion regardless of the circumstances giving rise to any such condition failing to be satisfied:

 

 

 

 

 

For a full description of the conditions to the Offer, please see Annex A attached hereto. The foregoing summary of the conditions to the Offer does not purport to be complete and is qualified in its entirety by reference to the contents of Annex A attached hereto.

 

The Schedule TO states that the principal executive offices of IP are located at 6400 Poplar Avenue, Memphis, Tennessee 38197 and that the telephone number of its principal executive offices is (901) 419-7000.

 

 

Except as described in this Statement or in the excerpts from the Temple-Inland Definitive Proxy Statement on Schedule 14A, dated and filed with the SEC on March 23, 2011 (the “2011 Proxy Statement”), relating to the Temple-Inland 2011 annual meeting of stockholders, which excerpts are filed as Exhibit (e)(1) to this Statement and incorporated herein by reference, as of the date of this Statement there are no material agreements, arrangements or understandings, nor any actual or potential conflicts of interest, between Temple-Inland or any of its affiliates, on the one hand, and (i) Temple-Inland or any of its executive officers, directors, or affiliates, or (ii) IP, IP Sub, or any of their respective executive officers, directors, or affiliates, on the other hand. Exhibit (e)(1) is incorporated herein by reference and includes the following sections from the 2011 Proxy Statement: “Voting Securities and Principal Stockholders,” “Transactions with Related Persons,” “Director Compensation,” “Executive Compensation — Compensation Discussion and Analysis,” and “Executive Compensation Tables.”

 

Any information contained in the pages from the 2011 Proxy Statement incorporated by reference herein shall be deemed modified or superseded for purposes of this Statement to the extent that any information contained herein modifies or supersedes such information.

 

Relationship with IP

 

According to the Schedule TO, as of July 12, 2011, IP was the beneficial owner of 1,000 Temple-Inland Common Shares, representing less than one percent of the outstanding Temple-Inland Common Shares.

 

From time to time, Temple-Inland and IP may buy, sell, or trade containerboard. In 2010, Temple-Inland sold approximately $17.5 million in containerboard to IP and Temple-Inland purchased approximately $26 million in containerboard from IP, substantially all of which was in the form of trades. In the ordinary course of their respective businesses, Temple-Inland and IP participate together in several industry groups, primarily the American Forest and Paper Association.

 

Consideration Payable Pursuant to the Offer and the Second-Step Merger

 

If the directors and executive officers of Temple-Inland were to tender any Temple-Inland Common Shares they own pursuant to the Offer, they would receive the same cash consideration on the same terms and conditions as the other Temple-Inland stockholders. As of July 1, 2011, the directors and executive officers of Temple-Inland owned an aggregate of 1,326,530 Temple-Inland Common Shares. If the directors and executive officers of Temple-Inland were to tender all of such Temple-Inland Common Shares for purchase pursuant to the Offer and those Temple-Inland Common Shares were accepted for purchase by IP, the directors and

executive officers of Temple-Inland would receive an aggregate of approximately $40,591,818 in cash. To the knowledge of Temple-Inland, none of the directors and executive officers of Temple-Inland currently intend to tender any Temple-Inland Common Shares held of record or beneficially owned by such person for purchase pursuant to the Offer.

 

As of July 1, 2011, the directors and executive officers of Temple-Inland held options to purchase an aggregate of 3,979,198 Temple-Inland Common Shares, with exercise prices ranging from $4.55 to $24.40 and an aggregate weighted average exercise price of $14.74 per share, 2,532,365 of which were vested and exercisable as of that date. Any options to acquire Temple-Inland Common Shares held by the directors and executive officers of Temple-Inland were issued pursuant to the Temple-Inland Inc. 1997 Stock Option Plan, Temple-Inland Inc. 2001 Stock Incentive Plan, Temple-Inland Inc. 2003 Stock Incentive Plan, Temple-Inland Inc. 2008 Stock Incentive Plan, or Temple-Inland Inc. 2010 Incentive Plan, filed (including amendments) as Exhibits (e)(2) through (e)(10) to this Statement, and incorporated herein by reference (collectively, the “Plans”). Under the Plans, consummation of the Offer would constitute a change of control of Temple-Inland, and upon a change of control of Temple-Inland, all unvested options to purchase 1,446,833 Temple-Inland Common Shares held by the directors and executive officers of Temple-Inland would vest.

 

The following table summarizes, with respect to (1) each Temple-Inland director, (2) each Temple-Inland named executive officer (the “Named Executive Officers”), and (3) all executive officers (other than the Named Executive Officers) (the “Other Executive Officers”) as a group, the aggregate, positive difference in value between $30.60 and the per share exercise prices (the “Spread Value”) of the options to purchase Temple-Inland Common Shares held by such directors and executive officers as of July 1, 2011:

 

 

 

Note: Mr. Vesci retired from the Company effective June 1, 2011.

 

Potential Payments Upon Change in Control

 

See “Item 8. Additional Information — Information Regarding Golden Parachute Compensation” below.

Directors’ Compensation

 

Under the Temple-Inland director compensation program, only directors who are not employees of Temple-Inland receive compensation for their services as directors, as follows:

 

 

Fees may be taken in cash or may be deferred until retirement. Deferred fees accrue interest payable at retirement equal to 120 percent of the quarterly applicable federal long-term rate published by the Internal Revenue Service (the “IRS”).

 

The directors’ restricted stock units and fee deferral plan contain provisions for accelerating payment in the event a director’s service terminates due to a change in control, along with a gross-up provision in the event such director is required to pay excise tax on the accelerated payment.

 

Temple-Inland also reimburses its non-employee directors for their out-of-pocket expenses incurred in connection with attendance at Board, committee, and stockholder meetings and other company business.

 

Indemnification of Directors and Officers

 

Section 145 of the DGCL provides that a corporation may indemnify directors, officers, employees and agents of the corporation, as well as other individuals who are or were serving at the request of the corporation as directors, officers, employees and agents of other entities, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by them in connection with specified actions, suits, or proceedings, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation — a “derivative action”), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe their conduct was unlawful.

 

A similar standard is applicable in the case of derivative actions, except where the person seeking indemnification has been adjudged liable to the corporation, the statute requires a court determination that such person is fairly and reasonably entitled to indemnity before there can be any indemnification.

 

Temple-Inland’s Certificate of Incorporation, as amended, eliminates director liability for monetary damages arising from any breach of the director’s duty of care.

 

Article VI of Temple-Inland’s Amended and Restated Bylaws generally provides that, subject to certain limitations, each person who was or is made a party or is threatened to be made a party to or is involved in any threatened, pending, or completed legal action, suit, or proceeding whether civil, criminal, administrative, or investigative by reason of the fact that he is or was a director, officer, or employee of Temple-Inland or is or was a director, officer, or employee of Temple-Inland or a direct or indirect wholly owned subsidiary of Temple-Inland or is or was serving at the request of the corporation as a director, officer, employee, or agent of any such subsidiary or another company, partnership, joint venture, trust, employee benefit plan, or other enterprise, shall be indemnified and held harmless by the corporation, to the full extent authorized by the

DGCL, against all expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by such person in connection therewith, provided that such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of Temple-Inland (and with respect to a criminal action, had no reason to believe his conduct was unlawful), except that with respect to actions brought by or in the right of Temple-Inland, no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudicated to be liable to Temple-Inland, unless and only to the extent that the applicable court determines, upon application, that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. Such indemnification shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be director, officer, employee, or agent and shall inure to the benefit of his or her heirs, executors, and administrators. Article VI provides that Temple-Inland shall pay the expenses incurred in defending any such proceeding in advance of its final disposition upon delivery to Temple-Inland of an undertaking, by or on behalf of such director, officer, employee, or agent to repay such amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified under Article VI.

 

Both Section 145 of the DGCL and Article VI of Temple-Inland’s Bylaws specifically state that their indemnification provisions shall not be deemed exclusive of any other indemnity rights a director may have. Temple-Inland has entered into indemnification agreements with each of its directors that are intended to assure the directors that they will be indemnified to the fullest extent permitted by Delaware law.

 

Section 145 of the DGCL permits a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another entity, against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such. Under an insurance policy maintained by Temple-Inland, Temple-Inland is insured for certain amounts that it may be obligated to pay directors and officers by way of indemnity, and each such director and officer is insured against certain losses that he may incur by reason of his being a director or officer and for which he is not indemnified by Temple-Inland.

 

 

Solicitation/Recommendation

 

After careful consideration, including review of the terms and conditions of the Offer in consultation with Temple-Inland’s independent financial and outside legal advisors, the Temple-Inland Board, by unanimous vote at a meeting on July 16, 2011, determined that the Offer grossly undervalues Temple-Inland and that the Offer is not in the best interests of Temple-Inland’s stockholders. Accordingly, for the reasons described in more detail below, the Temple-Inland Board unanimously recommends that Temple-Inland’s stockholders reject the Offer and NOT tender any of their Temple-Inland Common Shares to IP pursuant to the Offer. Please see “— Reasons for Recommendation” below for further detail.

 

If you have tendered any of your Temple-Inland Common Shares, you can withdraw them. For assistance in withdrawing your Temple-Inland Common Shares, you can contact your broker or Temple-Inland’s information agent, D.F. King & Co., Inc., at the address and phone number below.

 

D.F. King & Co., Inc.
48 Wall Street, 22nd Floor
New York, NY 10005

 

Banks and Brokers call collect: (212) 269-5550
All others call toll-free: (800) 431-9633

 

A copy of the press release relating to the recommendation of the Temple-Inland Board that Temple-Inland’s stockholders reject the Offer and not tender any of their Temple-Inland Common Shares to IP pursuant to the Offer is filed as Exhibit (a)(10) hereto and is incorporated herein by reference.

Background of the Offer and Reasons for Recommendation

 

Background of the Offer

 

In 2007, Temple-Inland went through a significant transformation designed to create stockholder value through the separation of Temple-Inland into three focused, stand-alone, public companies and the sale of its strategic timberland. Following these transactions, Temple-Inland has been a manufacturing company focused on corrugated packaging and building products.

 

The new Temple-Inland has delivered outstanding results to its stockholders compared with its corrugated packaging peers (including IP), building products peers, and the S&P 500. Temple-Inland has achieved these results by following its strategy focused on maximizing return on investment (ROI) and profitably growing its business and because of its management team’s proven ability to execute. The Temple-Inland Board believes the Company is poised to further increase ROI and continue to provide superior results for its stockholders by adhering to this successful strategy.

 

The following charts demonstrate the new Temple-Inland’s proven track record.

 

Our total return to stockholders for the period from December 31, 2007 until June 2, 2011 has exceeded our primary corrugated packaging peers (including IP), building products peers, and the S&P 500:

 

In our corrugated packaging segment, we have made consistent, strong progress toward our goals of increasing our absolute returns and achieving the highest returns in the industry. In 2009, we generated the highest return on assets (ROA) in the industry and reclaimed that position in first quarter 2011:

 

 

A key part of our strategy is to maximize ROI, because we believe ROI is fundamental to driving stockholder value. When making peer comparisons, however, we look at ROA because that is the closest metric that can be calculated from publicly available information.

In our building products segment, we are one of the very few companies in the building products industry that has continued to generate positive cash flow throughout the downturn in housing:

 

 

Set forth below is a summary of the events and major contacts between IP and Temple-Inland leading up to the Offer:

 

On May 17, 2011, John Faraci, Chairman and CEO of IP, telephoned Doyle Simons, Chairman and CEO of Temple-Inland, and made an unsolicited proposal on behalf of IP to acquire all of Temple-Inland’s Common Shares for $30.60 per share in cash. Mr. Simons told Mr. Faraci that he believed IP’s proposal severely undervalued Temple-Inland. Mr. Faraci also requested an in-person meeting with Mr. Simons. That same day, Mr. Simons contacted E. Linn Draper, Lead Director of the Temple-Inland Board, and informed Dr. Draper of the proposal and discussed calling a meeting of the Temple-Inland Board to discuss the proposal. Mr. Simons also contacted Temple-Inland’s existing independent financial advisor, Goldman, Sachs & Co. (“Goldman Sachs”), and legal advisor, Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”).

 

The next day, Mr. Simons convened a telephonic meeting of the Temple-Inland Board. Also participating were representatives from Temple-Inland’s independent financial and legal advisors. Mr. Simons updated the Board as to IP’s proposal, and the Board discussed the process to be followed in analyzing and responding to the proposal, including the request for Mr. Simons to meet with Mr. Faraci in person. Mr. Simons explained that the Company and Goldman Sachs would analyze the financial terms of the proposal and that after this analysis was complete the Board would reconvene to consider the proposal. After the meeting, Mr. Simons called Mr. Faraci and agreed to meet in person on May 26, 2011.

On May 20, 2011, Mr. Simons received a letter dated May 19, 2011 from Mr. Faraci summarizing the terms of the proposal that he had previously conveyed to Mr. Simons over the phone. The full text of this letter is set forth as Exhibit (a)(4) and is incorporated by reference herein.

 

As previously agreed, on May 26, 2011, Mr. Simons met with Mr. Faraci in person in Austin, Texas. Mr. Faraci repeated IP’s proposal to purchase all of the Temple-Inland Common Shares for a price of $30.60 per share in cash and presented Mr. Simons with certain advocacy materials relating to IP’s proposed price. Mr. Simons again told Mr. Faraci that he believed that the proposal severely undervalued Temple-Inland. Mr. Simons also informed Mr. Faraci that he was scheduling a Board meeting to review IP’s proposal and that such a meeting would take place within the next ten days. Mr. Simons asked Mr. Faraci if there was any additional information that Mr. Faraci would like to convey to him or to the Temple-Inland Board. Mr. Faraci responded that he did not have any additional information for Mr. Simons or the Temple-Inland Board. Mr. Simons told Mr. Faraci that he would contact Mr. Faraci following the Board meeting.

 

On May 27, 2011, Mr. Simons received a second letter from Mr. Faraci repeating IP’s proposal to acquire Temple-Inland for $30.60 per Temple-Inland Common Share. Mr. Faraci requested a response to the proposal no later than Saturday, June 4. Mr. Faraci concluded the letter by stating that although IP preferred to enter into a negotiated transaction with Temple-Inland, IP was prepared to make an unsolicited offer directly to the Temple-Inland stockholders. The full text of this letter is set forth as Exhibit (a)(5) and is incorporated by reference herein.

 

On June 4, 2011, the Temple-Inland Board met and, after careful consideration with Goldman Sachs and Wachtell Lipton, voted unanimously to reject IP’s proposal after the Board determined unanimously that the proposal grossly undervalues Temple-Inland and is not in the best interest of Temple-Inland’s stockholders. The Board authorized Mr. Simons to communicate its rejection to Mr. Faraci. Later that day, Mr. Simons called Mr. Faraci to communicate the Board’s rejection of the proposal. Mr. Simons asked Mr. Faraci if there was any additional information that Mr. Faraci would like to convey to him or to the Temple-Inland Board. Mr. Faraci responded that he did not have any additional information for Mr. Simons or the Temple-Inland Board. Shortly after the call, Mr. Simons also sent Mr. Faraci a letter, which is reproduced below:

 

June 4, 2011

 

Mr. John V. Faraci

Chairman and CEO

International Paper

6400 Poplar Avenue

Memphis, TN 38197

 

Dear John:

 

The Board of Directors of Temple-Inland has received your letters dated May 19 and May 27, 2011 containing IP’s proposal to acquire all of the outstanding shares of Temple-Inland for $30.60 per share in cash. The Board has also considered the additional information you provided me at our meeting held at your request on May 26. Earlier today, the Temple-Inland Board of Directors convened and carefully reviewed your company’s proposal with the assistance of its financial advisor, Goldman, Sachs & Co., and its legal counsel, Wachtell, Lipton, Rosen & Katz. After thorough consideration, it is the unanimous view of the Temple-Inland Board of Directors that your unsolicited proposal grossly undervalues Temple-Inland and its future prospects. Accordingly, the Temple-Inland Board unanimously rejects IP’s proposal of $30.60 per share.

 

Since we launched the “new” Temple-Inland in January 2008, we have delivered superior results to our stockholders compared with our corrugated packaging peers (including IP), building products peers, and the S&P 500. Since that time, our total returns to stockholders of 22% greatly exceed the 5% total return that IP has achieved. Through our proven ability to execute our strategy focused on maximizing return on investment (ROI) and profitably growing our business, the Board believes the Company will continue to provide superior results for our stockholders.

A key part of our strategy is to maximize ROI, because we believe ROI is fundamental to driving stockholder value. In corrugated packaging, we generated record ROI of 16.5% in 2009 and 2010 and are positioned to generate significantly higher levels of ROI in 2011 and beyond due to fundamental changes in the industry and benefits from our box plant transformation. Indeed, we are now achieving the highest returns on assets in the corrugated packaging industry. Despite the worst housing markets since the Great Depression, our low-cost building products operation has continued to generate positive cash flow throughout the downturn and is positioned to generate very high levels of return for our stockholders when housing markets recover. As the economic recovery continues and the benefits from our strategy continue to be realized, it is the stockholders of Temple-Inland who should benefit from our company’s very strong prospects, not the stockholders of IP.

 

We take issue with a number of claims in the materials you have provided to us. You have overstated our net debt by $91 million (which was $737 million as of March 31, 2011, rather than the $828 million stated in your proposal) and the net present value of our timber finance liability by at least $200 million. More significantly, the “comparable” transactions you cite are simply not comparable — those transactions involved troubled or struggling companies or operations rather than a company such as Temple-Inland with its industry-leading returns, high-quality assets and low-cost structure. Further, the retrospective focus of these “comparables” does not take account of the profound changes that are occurring in the corrugated packaging industry, which have led to reduced pricing volatility, higher average prices and widely-held expectations that these positive industry trends will continue.

 

Your own public statements acknowledge the changes in the industry and make clear that “looking back at history” is not the correct way to understand the corrugated packaging industry’s future. If, as you so clearly state, the past is not prologue for your company, neither is it for ours. We believe that it is for this reason that your letter of May 27 insistently says “Timing and speed are important,” and you have threatened us with a hostile bid if we do not respond by your deadline. The speed that is “important” to you underscores an opportunistic attempt to deprive our stockholders of the value in their company that we believe will become increasingly evident as the benefits of profound change in the corrugated packaging industry, Box Plant Transformation II and our extremely low-cost building products business accrue to the benefit of our stockholders. Finally, the “certain” value you refer to overlooks the serious regulatory issues of your proposal, an attempt to forcibly combine the #1 and #3 participants in the corrugated packaging industry with the result that your company would have an approximate 40% share of industry capacity, nearly double the next largest competitor.

 

Our Board of Directors, our management team and our employees are dedicated to creating value for all of our stockholders, which we expect to do by continuing to effectively execute on our strategic plan.

 

Sincerely,

 

Doyle R. Simons

 

On June 6, 2011, Mr. Faraci called Mr. Simons to express his disappointment with the Temple-Inland Board’s rejection of the proposal. Shortly after the phone call, IP issued a press release announcing its proposal to acquire all outstanding Temple-Inland Common Shares for $30.60 in cash. After issuing the press release, Mr. Faraci sent a letter to Mr. Simons. The full text of this letter is set forth as Exhibit (a)(7) and is incorporated by reference herein.

 

Later that day, Temple-Inland issued a press release stating that after careful consideration with its independent financial and legal advisors, the Temple-Inland Board had voted unanimously to reject IP’s proposal after the Board had determined unanimously that the proposal grossly undervalues Temple-Inland and is not in the best interest of Temple-Inland’s stockholders.

 

At a meeting on June 7, 2011, the Temple-Inland Board, after presentations by Temple-Inland’s independent financial and legal advisors, and after careful consideration, voted unanimously to adopt a stockholder rights plan and declare a dividend distribution of one preferred share purchase right on each

outstanding share of Temple-Inland common stock. Following the Board meeting, the Company issued a press release announcing its adoption of the stockholder rights plan.

 

On June 20, 2011, Mr. Faraci telephoned Mr. Simons. Mr. Faraci said that he had new information regarding IP’s proposal that he wished to convey to Mr. Simons in person in Washington, D.C. later in the week. Mr. Simons again stated that the current proposal severely undervalued the Company and that additional discussions regarding the current proposal were not likely to be fruitful. Mr. Simons then asked whether the new information would include an increase in IP’s proposal. Mr. Faraci told Mr. Simons that although the new information did not include an increased proposal, it would be “worth [Mr. Simons’s] while” to hear the new information. Mr. Simons indicated that he would consider Mr. Faraci’s request.

 

The next day, Mr. Simons called Mr. Faraci and agreed to Mr. Faraci’s request for a second in-person meeting later in the week.

 

On June 23, 2011, at Mr. Faraci’s request, Mr. Simons again met Mr. Faraci in person in Washington, D.C. Mr. Faraci stated that IP would like the opportunity to conduct due diligence with respect to the following aspects of the Company’s finances: what IP characterizes as “minority interest” in its net debt figure for the Company, net present value of the timber financing transaction, and liabilities for pension and retiree medical. Mr. Simons again informed Mr. Faraci that IP’s current proposal undervalued the Company. Mr. Simons added that if IP were to make a proposal that provided appropriate value to the Company’s stockholders, he would recommend to the Temple-Inland Board that IP be allowed to conduct due diligence and that the companies enter into negotiations.

 

Very shortly after the end of regular New York Stock Exchange trading on July 11, 2011, Mr. Faraci called Mr. Simons and informed Mr. Simons that IP intended to commence the Offer. A few minutes later, IP issued a press release announcing its intention to commence the Offer the following day. Later on July 11, 2011, Temple-Inland issued a press release acknowledging IP’s press release announcing its intention to commence the Offer and advising Temple-Inland stockholders to take no action pending the Temple-Inland Board’s consideration of the Offer and making a formal recommendation to Temple-Inland’s stockholders with respect thereto.

 

On July 12, 2011, IP commenced the Offer.

 

On July 16, 2011, the Temple-Inland Board met to review the terms of the Offer with the assistance of Goldman Sachs and Wachtell Lipton. During this meeting, Goldman Sachs rendered an oral opinion to the Board, subsequently confirmed in writing, that as of July 16, 2011 and based upon and subject to the factors and assumptions set forth in its written opinion, the consideration proposed to be paid to the holders of Temple-Inland Common Shares (other than IP Sub and its affiliates) pursuant to the Offer was inadequate from a financial point of view to such holders. At the meeting, the Temple-Inland Board unanimously determined that the Offer grossly undervalues Temple-Inland and is not in the best interests of Temple-Inland and its stockholders. Accordingly, the Temple-Inland Board unanimously determined to recommend that the Temple-Inland stockholders reject the Offer and not tender their Temple-Inland Common Shares into the Offer. The full text of the written opinion of Goldman Sachs, dated July 16, 2011, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with such opinion, is attached as Annex B. Goldman Sachs provided its opinions for the information and assistance of the Temple-Inland Board in connection with its consideration of the Offer. The opinion of Goldman Sachs is not a recommendation as to whether or not any holder of Temple-Inland Common Shares should tender such Temple-Inland Common Shares in connection with the Offer or any other matter.

 

Reasons for Recommendation

 

In reaching the conclusions and in making the recommendation described above, the Temple-Inland Board consulted with Temple-Inland management and its independent financial and legal advisors and took into account numerous factors, including but not limited to the factors listed below.

 

The Temple-Inland Board believes that the Offer (i) grossly undervalues Temple-Inland and its future prospects, (ii) is extremely opportunistic, and (iii) is subject to regulatory uncertainty.

The Temple-Inland Board is unanimous in its belief that the Offer grossly undervalues Temple-Inland and that it fails to appropriately reflect the underlying value of Temple-Inland’s assets, operations, future cash flow, and strategic plan, including its position as the ROA leader in the corrugated packaging industry, benefits from box plant transformation, its low-cost building products operation, and its strategic place within the industry as the third largest producer of corrugated packaging in North America.

 

Since the “new” Temple-Inland was launched in early 2008, Temple-Inland has delivered superior total return to stockholders compared with its primary corrugated packaging peers (including IP), building products peers, and the S&P 500. Temple-Inland has achieved these results by following its strategy focused on maximizing ROI and profitably growing its business and because of its management team’s proven ability to execute. The Temple-Inland Board believes the Company is poised to further increase ROI and continue to provide superior results for its stockholders by adhering to this successful strategy. The Temple-Inland Board is confident that Temple-Inland will, consistent with its history, execute its strategic plan effectively and, accordingly, that Temple-Inland will deliver greater value to its stockholders by operating its business in accordance with this plan than would be obtained under the Offer.

 

 

The Board unanimously believes that the Offer grossly undervalues Temple-Inland and is not in the best interests of Temple-Inland stockholders:

 

 

The Board believes that the value to stockholders reflected in the Company’s current plans, derived by applying present value calculations to Temple-Inland’s projected stock prices (without including any control premium), is greater than $30.60 per Temple-Inland Common Share.

 

Temple-Inland’s outstanding prior results strongly support the Board’s confidence in the achievability of Temple-Inland’s plans. As reflected in the stockholder total return chart provided above, since the “new” Temple-Inland was launched in early 2008, Temple-Inland has delivered cumulative total stockholder returns to its owners that are superior to the return to stockholders of its primary corrugated packaging peers, building products peers, and the S&P 500. We have grown our ROI from 4.5 percent in 2008, to 7 percent in 2009, and to 8.2 percent in 2010. We had record ROI of 16.5 percent in corrugated packaging in 2009 and 2010, and 2010 was the fifth consecutive year we earned above our cost of capital in this business.

 

As reflected in the building products EBITDA chart provided above, despite the fact that housing starts were down 33 percent in 2008 compared with 2007, down another 39 percent in 2009, and have remained at the lowest levels since the Great Depression, we have improved our EBITDA from $8 million in 2008, to $17 million in 2009, and to $22 million in 2010 primarily due to significant changes we have made in our cost structure. We are one of the very few companies in the building products industry that has continued to generate positive EBITDA throughout the downturn in housing. Our low-cost structure and our proven ability to generate cash in the worst housing markets highlight the significant earning power of this business when housing markets recover.

 

 

 

In addition to this shift in industry focus, industry capacity has been shrinking and is expected to shrink further. Over the past two years, approximately 7 percent, or 2.4 million tons, of capacity has been rationalized from the industry. Despite a weak economic environment, current industry fundamentals are constructive as indicated by low inventory levels, high operating rates, and higher prices, as reflected in the chart below:

 

 

Soon after Rock-Tenn’s acquisition of Smurfit-Stone, Rock-Tenn’s Chairman and CEO stated:

 

 

This view is shared by industry analysts such as Gail Glazerman of UBS, who wrote on July 6, 2011:

 

 

Mr. Faraci acknowledges that the containerboard industry is in a dynamic period:

 

 

The Offer does not appropriately reflect the value of the fundamental changes in the industry, improving pricing, and the resulting ROI benefit for Temple-Inland, the third largest producer of corrugated packaging in North America, as the economy continues to recover.

 

 

 

The Board believes that the timing of the Offer is extremely opportunistic and disadvantageous to Temple-Inland stockholders:

 

 

In February 2010, we announced the second phase of this effort, “Box Plant Transformation II,” which is designed to further reduce our box plant system cost by an additional $100 million per year. The capital investment for Box Plant Transformation II, which will be 85 percent completed by year-end 2011, is estimated to be about $250 million with an ROI of 40 percent. We achieved approximately $10 million of the anticipated $100 million annual benefit from Box Plant Transformation II in 2010, and we estimate the remaining $90 million will be achieved over the course of 2011, 2012, and 2013.

 

In addition to the cost savings we anticipate, the new equipment and technology we are putting in place as part of Box Plant Transformation II allow us to better serve our customers and target a higher value segment of the corrugated packaging market. High graphic boxes and short-order quantity boxes typically provide higher margins, and in 2010 we grew our business in this segment by 6 percent.

When we complete Box Plant Transformation II, we will have the lowest cost, most highly profitable corrugated packaging business in the industry. Based on our success with the first phase of box plant transformation, we are confident in our ability to achieve the announced results from Box Plant Transformation II. We believe that box plant transformation is a “game changer” for us because it will enable us to sustain and increase our industry-leading ROA performance.

 

The Offer does not appropriately value the benefits from box plant transformation, and it is Temple-Inland’s stockholders, not IP’s, that deserve to receive the benefit of the significant capital we have invested in this project.

 

 

 

 

III) The Offer is subject to regulatory and other uncertainty

 

The Board believes that the timing of the Offer is highly uncertain.

 

 

 

 

 

 

The Temple-Inland Board considered the fact that Goldman Sachs rendered an opinion to the Temple-Inland Board, subsequently confirmed in writing, that as of July 16, 2011, and based upon and subject to the factors and assumptions set forth in the written opinion, the consideration proposed to be paid to the holders of Temple-Inland Common Shares (other than IP Sub or its affiliates) pursuant to the Offer was inadequate from a financial point of view to the stockholders. The full text of the written opinion of Goldman Sachs dated July 16, 2011, which sets forth the assumptions made, procedures followed, matters considered, and limitations on the review undertaken in connection with the opinion, is attached as Annex B. Goldman Sachs provided its opinion for the information and assistance of the Temple-Inland Board in connection with its consideration of the Offer. The opinion of Goldman Sachs is not a recommendation as to whether or not any holder of Temple-Inland Common Shares should tender Temple-Inland Common Shares in connection with the Offer or any other matter.

 

The foregoing discussion of the information and factors considered by the Board is not meant to be exhaustive, but includes the material information, factors, and analyses considered by the Board in reaching its conclusions and recommendations. The members of the Temple-Inland Board evaluated the various factors listed above in light of their knowledge of the business, financial condition, and prospects of Temple-Inland and considered the advice of the Board’s financial and legal advisors. In light of the number and variety of factors that the Board considered, the members of the Board did not find it practicable to assign relative weights to the foregoing factors. However, the recommendation of the Board was made after considering the totality of the information and factors involved. In addition, individual members of the Board may have given different weight to different factors.

 

In light of the factors described above, the Temple-Inland Board has unanimously determined that the Offer is not in the best interests of Temple-Inland’s stockholders. Therefore, the Temple-Inland Board unanimously recommends that the stockholders reject the Offer and not tender any of their shares to IP for purchase pursuant to the Offer.

 

Intent to Tender

 

To the knowledge of Temple-Inland after making reasonable inquiry, none of Temple-Inland’s directors, executive officers, affiliates or subsidiaries intends to tender any Temple-Inland Common Shares held of record or beneficially owned by such person pursuant to the Offer.

 

Temple-Inland has retained Goldman, Sachs & Co. in connection with, among other things, Temple-Inland’s analysis and consideration of, and response to, the Offer. Temple-Inland will pay Goldman Sachs customary fees for its services, reimburse it for its reasonable out-of-pocket expenses (including fees and disbursements of its legal counsel), and indemnify it against certain liabilities relating to or arising out of the engagement.

 

Temple-Inland has engaged D.F. King & Co., Inc. (“DF King”) to assist it in connection with Temple-Inland’s communications with its stockholders in connection with the Offer. Temple-Inland has agreed to pay customary compensation to DF King for such services. In addition, Temple-Inland has agreed to reimburse DF King for its reasonable out-of-pocket expenses and to indemnify it and certain related persons against certain liabilities relating to or arising out of the engagement.

 

Temple-Inland has also retained Kekst and Company (“Kekst”) as its public relations advisor in connection with the Offer. Temple-Inland has agreed to pay customary compensation to Kekst for such services. In addition, Temple-Inland has agreed to reimburse Kekst for its reasonable out-of-pocket expenses and to indemnify it and certain related persons against certain liabilities relating to or arising out of the engagement.

 

Except as set forth above, neither Temple-Inland nor any person acting on its behalf has or currently intends to employ, retain, or compensate any person to make solicitations or recommendations to the stockholders of Temple-Inland on its behalf with respect to the Offer.

 

 

Securities Transactions

 

No transactions with respect to Temple-Inland Common Shares have been effected by Temple-Inland or, to the Company’s knowledge after making reasonable inquiry, by any of its executive officers, directors, affiliates, or subsidiaries during the 60 days prior to the date of this Statement.

 

 

Temple-Inland routinely maintains contact with third parties, including other participants in its industry, regarding a wide range of potential business transactions. It has not ceased, and expects to continue, such activity as a result of the Offer. Temple-Inland’s policy has been, and continues to be, not to disclose the existence or content of any such discussions with third parties (except as may be required by law) as any such disclosure could jeopardize any future negotiations that Temple-Inland may conduct.

 

Except as described in the preceding paragraph or otherwise set forth in this Statement (including in the Exhibits to this Statement) or as incorporated in this Statement by reference, Temple-Inland is not currently undertaking nor engaged in any negotiations in response to the Offer that relate to, or would result in, (i) a tender offer for, or other acquisition of, Temple-Inland Common Shares by Temple-Inland, any of its subsidiaries, or any other person; (ii) any extraordinary transaction, such as a merger, reorganization, or liquidation, involving Temple-Inland or any of its subsidiaries; (iii) any purchase, sale, or transfer of a material amount of assets of Temple-Inland or any of its subsidiaries; or (iv) any material change in the present dividend rate or policy, or indebtedness or capitalization, of Temple-Inland.

 

Except as described above or otherwise set forth in this Statement (including in the Exhibits to this Statement) or as incorporated in this Statement by reference, there are no transactions, resolutions of the Board, agreements in principle, or signed contracts in response to the Offer that relate to, or would result in, one or more of the events referred to in the preceding paragraph.

 

 

Information Regarding Golden Parachute Compensation

 

Temple-Inland has entered into an employment agreement with Mr. Simons that contains certain change in control provisions (the “Simons Agreement”). In addition, Temple-Inland has entered into change in control

agreements (the “CIC Agreements”) with Messrs. Maley, Levy, Norton, and Vesci (who retired from the Company effective June 1, 2011) (collectively with the Simons Agreement, the “NEO CIC Agreements”). Each of the eight other executive officers have also entered into CIC Agreements. The terms of the NEO CIC Agreements provide salary and benefit continuation if (i) there is a change in control of Temple-Inland and (ii) Temple-Inland terminates the employment of a covered executive without cause or if the executive terminates employment for good reason, in each case within 24 months following a change in control (a “Qualifying Termination”). Good reason includes a material reduction of authority, duties, or responsibilities; a material diminution in base salary; a material change in the geographic location at which the executive must perform services; or other material breach of the agreement. The Offer, if consummated, would constitute a change in control for purposes of each of the NEO CIC Agreements.

 

Under the applicable provisions of the NEO CIC Agreements, the executives will receive upon a Qualifying Termination:

 

 

In the event that the Named Executive Officers are subject to the so-called “golden parachute” excise tax imposed under Section 4999 of the Internal Revenue Code, the executive will receive an additional payment such that he will be placed in the same after-tax position as if no excise tax had been imposed. However, the gross-up will only be paid if the change in control payments exceed 110 percent of the amount that would not be subject to excise tax. Otherwise, payments are reduced to the maximum amount that will not trigger the excise tax.

The following table presents, with respect to each Named Executive Officer, an estimate of the amounts of severance benefits payable in the event of a Qualifying Termination, estimated as of July 1, 2011. For a quantification of the Spread Value of vested and unvested options to purchase Temple-Inland Common Shares based on a $30.60 per share value, see the table above under the heading “Consideration Payable Pursuant to the Offer and the Second-Step Merger.”

 

Golden Parachute Compensation

 

 

 

 

 

 

 

 

Regulatory Approvals

 

U.S. Antitrust Clearance

 

Under the HSR Act, IP is required to file a Notification and Report Form with the Antitrust Division of the U.S. Department of Justice (the “Antitrust Division”) and the Federal Trade Commission (the “FTC”) relating to its proposed acquisition of Temple-Inland. IP filed this Notification and Report Form on July 12, 2011. Temple-Inland will be required to submit a responsive Notification and Report Form with the Antitrust Division and the FTC on or before 5:00 p.m. on July 22, 2011.

 

Under the provisions of the HSR Act applicable to the Offer, the acquisition of Temple-Inland voting securities pursuant to the Offer may be consummated following the expiration of a 15-day waiting period following the filing by IP of its Notification and Report Form with respect to the Offer, unless IP receives a request for additional information or documentary material from the Antitrust Division or the FTC or unless the antitrust agencies grant early termination of the waiting period. If, within the initial 15-day waiting period, either the Antitrust Division or the FTC issues a request for additional information or documentary material concerning the Offer, the waiting period will expire 10 days after the date IP certifies substantial compliance with the request, unless otherwise extended by court order.

 

At any time before or after IP’s acquisition of Temple-Inland voting securities pursuant to the Offer, the Antitrust Division or the FTC could take such action under the antitrust laws as either deems necessary or desirable in the public interest, including seeking to enjoin the purchase of Temple-Inland voting securities pursuant to the Offer or seeking the divestiture of Temple-Inland voting securities acquired by IP or the divestiture of substantial assets of Temple-Inland or its subsidiaries or IP or its subsidiaries. State attorneys general and private parties may also bring legal action under the antitrust laws. There can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, as to the result thereof.

 

If any waiting period under the HSR Act applicable to the Offer has not expired or been terminated prior to the expiration date of the Offer, or if the Antitrust Division, the FTC, a state attorney general, or a private party obtains an order enjoining the purchase of Temple-Inland voting securities, then IP will not be obligated to proceed with the Offer or the purchase of any Temple-Inland voting securities not previously purchased pursuant to the Offer. Additionally, IP may terminate the Offer if any action, proceeding, injunction, order, or decree becomes applicable to IP that seeks to restrain or prohibit the exercise by IP of its full rights of ownership or operation of all or a portion of IP’s business or assets or those of Temple-Inland. Please see Annex A for more information regarding conditions to the Offer.

 

Foreign Antitrust Considerations

 

Temple-Inland conducts operations outside of the United States, principally in Mexico. In 2010, Temple-Inland derived revenues from Mexico based on the point of sale were $228 million. The Offer may be subject to antitrust filings in Mexico. Competition authorities in Mexico may refuse to grant required approvals or clearances, bring legal action under applicable Mexican antitrust laws seeking to enjoin the purchase of Temple-Inland voting securities pursuant to the Offer, or seek the divestiture of Temple-Inland voting securities acquired by IP or the divestiture of substantial assets of Temple-Inland or its subsidiaries or of IP or its subsidiaries. There can be no assurance that IP will obtain all required Mexican antitrust approvals or clearances or that a challenge to the Offer by Mexican competition authorities will not be made or, if such a challenge is made, the result thereof.

 

Delaware Business Combinations Statute

 

Temple-Inland is subject to the provisions of Section 203 of the DGCL, which imposes certain restrictions upon business combinations involving Temple-Inland. The following description is not complete and is qualified in its entirety by reference to the provisions of Section 203 of the DGCL. In general, Section 203 of the DGCL prevents a Delaware corporation such as Temple-Inland from engaging in a “business combination” (which is defined to include a variety of transactions, including mergers such as the Second-Step Merger

proposed by IP) with an “interested stockholder” for a period of three years following the time such person became an interested stockholder unless:

 

 

For purposes of Section 203 of the DGCL, the term “interested stockholder” generally means any person (other than the corporation and any direct or indirect majority-owned subsidiary of the corporation) that (i) is the owner of 15 percent or more of the outstanding voting stock of the corporation or (ii) is an affiliate or associate of the corporation and was the owner of 15 percent or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder, and the affiliates and associates of such person. A Delaware corporation may elect not to be covered by Section 203 of the DGCL in its original certificate of incorporation or through an amendment to its certificate of incorporation or bylaws approved by its stockholders. An amendment electing not to be governed by Section 203 of the DGCL is not effective until 12 months after the adoption of such amendment and does not apply to any business combination between a Delaware corporation and any person who became an interested stockholder of such corporation on or prior to such adoption.

 

Neither Temple-Inland’s Certificate nor Bylaws exclude Temple-Inland from the coverage of Section 203 of the DGCL. Unless IP’s acquisition of 15 percent or more of the Temple-Inland Common Shares is approved by the Board before the Offer closes, Section 203 of the DGCL will prohibit consummation of the Second-Step Merger (or any other business combination with IP) for a period of three years following consummation of the Offer unless each such business combination (including the Second-Step Merger) is approved by the Temple-Inland Board and holders of 662/3 percent of the Temple-Inland Common Shares, excluding IP, or unless IP acquires at least 85 percent of the Temple-Inland Common Shares in the Offer. The provisions of Section 203 of the DGCL would be satisfied if, prior to the consummation of the Offer, the Temple-Inland Board approves the Offer.

 

Stockholder Rights Agreement

 

With its stockholders’ interests in mind, and like many companies, Temple-Inland has taken measures to protect its value for its stockholders, including adoption of the Rights Agreement, which is similar to rights agreements adopted by many other public companies, including the one that Temple-Inland had in place prior to its expiration in 2009. The purpose of the Rights Agreement is to prevent third parties from opportunistically acquiring Temple-Inland in a transaction that the Temple-Inland Board believes is not in the best interests of Temple-Inland’s stockholders. The Rights Agreement requires any party seeking to acquire 10 percent or more of the outstanding Temple-Inland Common Shares to obtain the approval of the Temple-Inland Board or else the Rights held by Temple-Inland stockholders other than the acquiror become exercisable for Temple-Inland Common Shares or preferred stock of Temple-Inland or common stock of the acquiror, at a discounted price that would make the acquisition prohibitively expensive. The Temple-Inland Board believes the Rights Agreement has helped Temple-Inland’s stockholders at this time by effectively preventing IP from opportunistically acquiring Temple-Inland at a price that the Temple-Inland Board believes is inadequate for the reasons discussed above.

Appraisal Rights

 

Holders of Temple-Inland Common Shares do not have appraisal rights as a result of the Offer. However, if the Second-Step Merger is consummated, holders of Temple-Inland Common Shares in connection with the Second-Step Merger will have certain rights pursuant to the provisions of Section 262 of the DGCL to dissent and demand appraisal of their Temple-Inland Common Shares. Under Section 262, dissenting stockholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Temple-Inland Common Shares (exclusive of any element of value arising from the accomplishment or expectation of the proposed merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of the Temple-Inland Common Shares could be based upon factors other than, or in addition to, the price per share to be paid in the proposed merger or the market value of the Temple-Inland Common Shares. The value so determined could be more or less than the price per share to be paid in the proposed merger.

 

Delaware Law

 

The Second-Step Merger would need to comply with various applicable procedural and substantive requirements of Delaware law. Several decisions by Delaware courts have held that, in certain circumstances, a controlling stockholder of a corporation involved in a merger has a fiduciary duty to the other stockholders that requires the merger to be fair to such other stockholders. IP would be a controlling stockholder if the holders of at least a majority of the Temple-Inland Common Shares accept the Offer and their shares are purchased by IP pursuant to the Offer. In determining whether a merger is fair to minority stockholders, Delaware courts have considered, among other things, the type and amount of consideration to be received by the stockholders and whether there were fair dealings among the parties.

 

 

 

Cautionary Statement on Forward-Looking Statements

 

Forward-looking statements are made throughout this Statement. These forward-looking statements are sometimes identified by the use of terms and phrases such as “believe,” “should,” “would,” “expect,” “project,” “estimate,” “anticipate,” “intend,” “plan,” “will,” “can,” “may,” or similar expressions elsewhere in this Statement. All forward-looking statements are subject to a number of important factors, risks, uncertainties, and assumptions that could cause actual results to differ materially from those described in any forward-looking statements. These factors and risks include, but are not limited to, general economic conditions, demand for new housing, accuracy of certain accounting assumptions, changes in actual or forecasted cash flows, competitive pressures, future sales volume, significant increases in the costs of certain commodities, timely implementation of price increases, successful execution of cost saving strategies, changes in tax laws, integration risks associated with recent acquisitions, changes in weighted average shares for diluted EPS, increases in transportation costs, and other financial, operational, and legal risks and uncertainties detailed from time to time in Temple-Inland’s cautionary statements contained in its filings with the SEC. Temple-Inland disclaims and does not undertake any obligation to update or revise any forward-looking statement in this Statement except as required by law. Temple-Inland notes that forward-looking statements made in connection with a tender offer are not subject to the safe harbors created by the Private Securities Litigation Reform Act of 1995. Temple-Inland is not waiving any other defenses that may be available under applicable law.

 

 

SIGNATURES

 

After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Statement is true, complete, and correct.

 

TEMPLE-INLAND INC.

 

Name:     Doyle R. Simons

 

Date: July 18, 2011

ANNEX A

 

Conditions to the Offer

 

The Schedule TO provides that IP is not required to accept for payment or, subject to applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (relating to IP Sub’s obligation to pay for or return tendered Temple-Inland Common Shares promptly after termination or expiration of the Offer), pay for any Temple-Inland Common Shares, and may terminate or amend the Offer if, before the Offer expires, the following conditions have not been satisfied:

 

 

In addition, IP is not required to accept for payment or, subject to applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act, pay for any Temple-Inland Common Shares, and may terminate or amend the Offer, if at any time on or after the date of the Offer, and before the time of payment for Temple-Inland Common Shares (whether or not any Temple-Inland Common Shares have theretofore been accepted for payment pursuant to the Offer), any of the following conditions exist:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Schedule TO states that the foregoing conditions are for the sole benefit of IP, IP Sub and their affiliates and may be asserted by IP or IP Sub in their sole discretion regardless of the circumstances giving rise to any such conditions in whole or in part at any applicable time or from time to time prior to the expiration of the Offer, except that the conditions relating to receipt of any approvals from any governmental authority may be asserted at any time prior to the acceptance for payment of Temple-Inland Common Shares, and all conditions may be waived by them in their sole discretion in whole or in part at any applicable time or from time to time, in each case subject to the applicable rules and regulations of the SEC, that IP expressly reserves the right to waive any of the conditions to the Offer and to make any change in the terms of or conditions to the Offer, subject to the Offer remaining open for a minimum period of time following any such waiver or change as required by the rules and regulations of the SEC, that IP’s failure at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right, that the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and that each such right shall be deemed an ongoing right which may be asserted at any time or from time to time.

ANNEX B

 

PERSONAL AND CONFIDENTIAL

 

July 16, 2011

 

Board of Directors

Temple-Inland Inc.

1300 South MoPac Expressway South

Austin, Texas 78746

 

Lady and Gentlemen:

 

You have requested our opinion as to the adequacy from a financial point of view to the holders (other than the Offeror (as defined below) and any of its affiliates) of the outstanding shares of common stock, par value $1.00 per share (the “Shares”), of Temple-Inland Inc. (the “Company”) of the $30.60 per Share in cash (the “Consideration”) proposed to be paid to such holders in the Offer (as defined below). The terms of the offer to purchase (the “Offer to Purchase”) and related letter of transmittal (which, together with the Offer to Purchase, constitutes the “Offer”) contained in the Tender Offer Statement on Schedule TO filed by International Paper Company (“Parent”) and Metal Acquisition Inc., a wholly-owned subsidiary of Parent (the “Offeror”), with the Securities and Exchange Commission on July 12, 2011 (the “Schedule TO”), provide for an offer for all of the Shares pursuant to which, subject to the satisfaction of certain conditions set forth in the Offer, the Offeror will pay the Consideration for each Share accepted. We note that the Offer to Purchase provides that, following consummation of the Offer, the Offeror intends to consummate a merger with the Company (the “Merger” and, together with the Offer, the “Transactions”) in which all remaining public stockholders of the Company would receive the highest price paid per Share pursuant to the Offer, without interest.

 

Goldman, Sachs & Co. and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and services, Goldman, Sachs & Co. and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, the Company, Parent and any of their respective affiliates or any currency or commodity that may be involved in the Transactions for their own account and for the accounts of their customers. We have acted as financial advisor to the Company in connection with its consideration of the Offer and other matters pursuant to our engagement by the Company. We have received a fee and expect to receive additional fees for our services in connection with our engagement, including advisory fees that will be payable whether or not the Offer is consummated. The Company has agreed to reimburse our expenses arising, and indemnify us against certain liabilities that may arise, out of our engagement. We may in the future provide investment banking services to the Company, Parent and their respective affiliates for which our Investment Banking Division may receive compensation.

 

In connection with this opinion, we have reviewed, among other things, the Schedule TO, including the Offer to Purchase and related letter of transmittal contained therein; the Solicitation/Recommendation Statement of the Company to be filed on Schedule 14D-9 with the Securities and Exchange Commission on July 18, 2011, in the form approved by you on the date of this opinion; annual reports to stockholders and Annual Reports on Form 10-K of the Company for the five fiscal years ended January 1, 2011; annual reports to stockholders and Annual Reports on Form 10-K of the Parent for the five fiscal years ended December 31, 2010; certain interim reports to stockholders and Quarterly Reports on Form 10-Q of the Company and Parent; certain other communications from the Company and Parent to their respective stockholders; certain publicly available research analyst reports for the Company and Parent; and certain internal financial analyses and forecasts for the Company prepared by its management, as approved for our use by the Company (the “Forecasts”). We have also held discussions with members of the senior management of the Company regarding their assessment of the

 

Board of Directors

Temple-Inland Inc.

July 16, 2011

Page 

 

strategic rationale of Parent for, and the potential benefits for Parent of, the Transactions and the past and current business operations, financial condition and future prospects of the Company. In addition, we have reviewed the reported price and trading activity for the Shares, compared certain financial and stock market information for the Company and Parent with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the corrugated and paper packaging industries specifically and in other industries generally; and performed such other studies and analyses, and considered such other factors, as we deemed appropriate.

 

For purposes of rendering this opinion, we have relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by, us; and we do not assume any responsibility for any such information. In that regard, we have assumed with your consent that the Forecasts have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company. We have not made an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company, Parent or any of their respective subsidiaries and we have not been furnished with any such evaluation or appraisal.

 

Our opinion does not address the relative merits of the Transactions as compared to any strategic alternatives that may be available to the Company; nor does it address any legal, regulatory, tax or accounting matters. This opinion addresses only the adequacy from a financial point of view, as of the date hereof, of the Consideration proposed to be paid to the holders of Shares (other than the Offeror and any of its affiliates) pursuant to the Offer. We do not express any view on, and our opinion does not address, the fairness, from a financial point of view, of the Consideration or any other term or aspect of the Transactions. In addition, we do not express any view on, and our opinion does not address, the adequacy or fairness of the Consideration or any other term or aspect of the Transactions to, or any consideration received in connection therewith by, the Offeror and any of its affiliates, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the adequacy or fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons in connection with the Transactions, whether relative to the Consideration proposed to be paid to the holders of Shares pursuant to the Offer or otherwise. We are not expressing any opinion as to the prices at which the Shares will trade at any time. Our opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof and we assume no responsibility for updating, revising or reaffirming this opinion based on circumstances, developments or events occurring after the date hereof. Our advisory services and the opinion expressed herein are provided for the information and assistance of the Board of Directors of the Company in connection with its consideration of the Offer and such opinion does not constitute a recommendation as to whether or not any holder of Shares should tender such Shares in connection with the Offer or any other matter. This opinion has been approved by a fairness committee of Goldman, Sachs & Co.

 

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Consideration proposed to be paid to the holders of Shares (other than the Offeror and any of its affiliates) pursuant to the Offer is inadequate from a financial point of view to such holders.

 

Very truly yours,

 

(GOLDMAN, SACHS & CO.)

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