South Korea’s biggest corrugated fiberboard makers Tailim Packaging and Tailim Paper are up for sale, according to industry sources on May 23.

Seoul-based private equity firm IMM PE, the largest shareholder of the two companies, has sent out a memorandum to a dozen potential buyers via the deal manager, Morgan Stanley, sources said.

The expected price for a 70.9 percent stake in Tailim Packaging and 100 percent of Tailim Paper ranges from 650 billion won ($546 million) to 1 trillion won. Tailim Packaging, which produces cardboard boxes, owns Taelim Paper.

The local corrugated fiberboard market has grown due to an increase in online shopping. Sales of Tailim Packaging and Tailim Paper stood at 608.6 billion won and 482.8 billion won in 2018, respectively, marking growth of more than 50 percent from 2016 for both companies. During the same period, operating profit of the packaging unit and papermaking unit soared 297 percent and 315 percent, respectively.

Potential buyers include Hansol Paper, Shindaeyang Paper and Asia Paper.

Hansol Paper, the biggest paper maker with 1.79 trillion won in sales last year, is eyeing to acquire Tailim. Hansol focuses on printing papers and industrial packaging materials but the printing paper market is slowing down. 

One side of the paper making industry has stagnated due to a decrease in print paper, while the other side -- corrugated fiberboard -- has seen growing demand and the falling price of waste paper.

“We’re interested in Tailim Packaging and Tailim Paper because we think the corrugated fiberboard market has a high potential for growth,” a Hansol official said.

Shindaeyang Paper and Asia Paper are also potential candidates for the deal, according to industry sources. Anyone who buys out Tailim is expected to become the market leader with a dominant market share. Tailim currently takes up 24 percent of the corrugated fiberboard market, while the two companies take up 21 and 20 percent, respectively.

Market insiders say the acquisition of Tailim could help generate growth for other industry players, though the price is an important factor. Industry sources said IMM PE wants more than 1 trillion won for the two companies but potential buyers could see that as too expensive and risky.

The country’s corrugated fiberboard makers have been enjoying high profitability due to a plunge in the recyclable paper price, as China last year banned the import of waste paper. But this could change unexpectedly.

“The potential of the corrugated fiberboard market is relatively high within the papermaking business,” Chang Yoon-soo, an analyst with KB Securities, said. “But if the M&A price is expensive, it could take a toll on the buyer’s financial soundness if the market situation deteriorates,” Chang said, citing a possible increase in waste paper prices.

By Park Ga-young (gypark@heraldcorp.com)