(Reuters) - International Paper Co <IP.N> is in talks with Bain Capital-backed Unisource Worldwide Inc to spin off and merge its distribution business with the privately held company as it focuses on its packaging business.
The company's shares rose as much as 3 percent in morning trading on the New York Stock Exchange.
The unit, xpedx, distributes printing and packaging supplies in North America and accounted for about 22 percent of International Paper's $27.83 billion revenue last year.
Xpedx's assets will be first divested into a newly formed corporation and International Paper will receive a cash dividend financed with debt raised by the new company.
The newly formed corporation will then be spun off to International Paper shareholders and immediately thereafter merged with Unisource. The deal -- structured as a 'Reverse Morris Trust' transaction -- will be tax-free to International Paper and its shareholders, the company said.
Terms of ownership in the merged company and the amount of dividend have not been decided.
International Paper is the largest North American producer of corrugated packaging, commonly used to make shipping boxes.
The company's consumer packaging unit makes boxes for soap, medicine and other consumer items.
Private equity firm Bain Capital LLC has a 60 percent stake in Unisource. Georgia Pacific LLC, which bought International Paper's building products unit in December, holds the rest.
If the transaction with Unisource does not materialize, International Paper will not seek further deals to sell xpedx, the company said.
Shares of International Paper were up 2.7 percent at $46.90 in late morning trade on Monday.
(Reporting By Garima Goel and Kanika Sikka in Bangalore; Editing by Sriraj Kalluvila)