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International Paper Agrees to Asset Swap in Brazil

Sept. 19, 2006 - International Paper today announced that it has entered into an agreement with Votorantim Celulose e Papel S.A. (VCP) to exchange IP's pulp mill project being developed in Tres Lagoas, state of Mato Grosso do Sul, Brazil (together with approximately 100,000 hectares of surrounding forestlands ) for VCP's Luiz Antonio pulp and uncoated paper mill and approximately 60,000 hectares of forestlands located in the state of Sao Paulo, Brazil. IP will fund the Tres Lagoas pulp mill project in the amount of US $1.15 billion.

The Luiz Antonio Mill is located 150 miles north of International Paper Brazil's Mogi Guacu Mill in Sao Paulo state. The mill has two paper machines that together produce 350,000 metric tonnes annually of uncoated papers. It also produces 385,000 metric tonnes of pulp annually, of which 100,000 metric tonnes will be sold to VCP for use at VCP's Piracicaba paper mill under a long-term supply agreement on competitive terms, with the balance used internally on the two paper machines on site.

After the exchange, VCP will own and operate a 1.1 million-metric-tonne pulp mill at Tres Lagoas. In addition, International Paper will build a 200,000-metric-tonne paper machine on a site adjacent to VCP's Tres Lagoas pulp mill, and has an option to build a second similar machine in the future. IP's new paper machines would be supported by a long-term supply agreement under which VCP would provide pulp, utilities and other services on competitive terms to International Paper.

"International Paper's Brazil operations are an important base for the company and this is an opportunity to expand our position in regional markets while capitalizing on one of the world's lowest-cost manufacturing environments. With this agreement, we will have the ability to expand our already successful platform to better serve growing demand in Latin America, as well as provide for future growth opportunities in other regions of the world," said John Faraci, IP's chairman and CEO.

"We are very pleased with the decision of our Board of Directors to approve the Tres Lagoas project. Given the financial strengths of the project, the growth potential in Latin America and the outstanding competitive position of Brazil, we believe that this project will make a significant contribution to making IP more competitive globally," said Maximo Pacheco, president of IP Brazil.

The transaction, which is expected to close by February 1, 2007, is part of International Paper's previously announced transformation plan to focus on uncoated papers and industrial and consumer packaging globally. With the previously announced sale of IP's Brazilian coated papers and saw mill business to Stora Enso, this agreement and the strategic review underway for a possible sale of IP Brazil's chip mill business in Amapa will substantially complete the transformation of IP Brazil to focus on the platform business of uncoated papers.

SOURCE: International Paper




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