Suzano S.A. (SUZB3) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to Suzano's investor conference call to discuss the joint venture with Kimberly-Clark. We would like to inform you that all participants will be in a listen-only mode during the presentation that will be addressed by the CEO, Mr. Beto Abreu; CFO, Mr. Marcos Assumpcao; Mr. Luis Bueno, Consumer Goods and Corporate Affairs Executive Vice President. This call will be presented in English with simultaneous translation to Portuguese. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management and on information currently available to the company, and are subject to the completion of the transaction. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or may not occur in the future. You should understand that general economic conditions, industry conditions and other operating factors could also affect the information disclosed in this conference call and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Beto Abreu.

Thank you very much for all that are attending here the call. Thank you for being with us today. I will start sharing with you the structure of this joint venture with KC and also the rationale on the strategy that move us forward to complete this call. I think the first thing that I would like to make it very clear is that since the beginning, we have decided that the only way to do the deal was through a JV not only a JV but a JV that we could control. And what was behind this was our understanding of the complexity of moving abroad in the deal with this size with so many countries. So KC together with us, they have been operating in these assets in this company for many, many years. They understand very well the value change, they understand very well the marketing, product development and also brand management. So that was the rationale of bringing Kimberly-Clark with us. The other condition that we have decide to put for ourselves was to have a call, and we have a call after 3 years of operating together that we can exercise or not without a put. So that was the way that kind of premises that we have decide before sitting on the table to start talking with KC, which is a partner of Suzano for many, many years already. So that was the first thing. The other thing, and this was because we do not underestimate the complexity and the challenge that we have ahead. On the other hand, we see 2 companies, 1 of them, which is ourselves putting a huge competence in terms of operational excellence in terms of capability to run facilities, and we are talking about 14 countries and 22 facilities. So we see a lot of value to add for those assets that we have visit during the last many months. The other thing that we, during the due diligence, realized that we have assets under very good conditions in terms of safety and in terms of maintenance. So this was also something that for us were very important regarding the level of stability and availability that we used to operate assets here in Brazil. The other thing that was important for us was we will control the JV. It's having the right to appoint the management to make sure that we're going to be able to implement the efficiency gains that we see in the JV as fast as we can. So on the strategy -- strategic point of view, we see that this is a unique opportunity to grow in the value chain with the level of scale that we understand it's important also with complementary expertise when we put those 2 companies together -- complementary competence, also opportunity to move forward and faster on our fiber-to-fiber strategy, considering that we also see a lot of opportunities on that and understanding very well the level of risk. We always say here internally that CapEx and capital allocation, it's a lot related to risk management. And considering that we already know very well the partner, we share values that we have the chance to operate together here in Brazil on a very similar situation, but now on the bigger movement and also that we're going to be able to work together with them and pay something that we understand in terms of returns at a very fair price, we see all the risk under this kind of transaction being mitigated and reduced. I will move forward, I hand over here to Marcos to Luis -- to Marcos that will cover the next slide.

Good morning, all. Now explaining a little bit of the strategic rationale for Suzano on this deal. First and most important, it creates value for the company. We're expecting an internal rate of return of more than 15% in this transaction. Second, it brings scale to the company. Together, Suzano and the JV will become the eighth largest tissue player in the world. And most importantly, it also -- it's an opportunity for the company to make a case study in terms of fiber-to-fiber implementation. We believe that this new company could stimulate other producers to follow suit the same strategy we -- that we're doing in this asset. Third point, it brings competitiveness. We had the opportunity to do a very detailed industrial due diligence in most of the assets that we are buying, and we found a very similar and standard good quality of assets good people running the companies and very strong brands that could allow us to perform very well in all of these markets. Also, a very important point, we believe that we could add and enhance the operations through additional efficiency gains by replicating very similar strategies that we did when we acquired the asset in Brazil. So on that efficiency gains, we are estimating that we could capture around $175 million per year after 3 years of operations following the closing. And last point, as we always mentioned, maintaining the investment-grade status is a priority to the company. And we had also the opportunity to discuss with the rating agencies, and we believe that it would have a positive view toward this deal as it reduces Suzano's cash flow volatility in the future with a very limited impact on financial leverage. Now I'd like to pass the word to Luis Bueno.

Thank you, Marcos, and good morning, everyone. This transaction involves a total tissue capacity of 1 million tons and annual revenues of $3.3 billion, with the EBITDA of $500 million. We are covering the same 2 business segments that we covered on the Brazilian deal 2 years ago, which is the Family Care and Professional. So it's exactly the same business segments. This JV will sell to over 70 countries, and we will use 100 distribution centers spread all over those countries. We've done a very detailed visit to almost all the mills in the 14 countries, and we found very well-maintained assets, very good housekeeping, plants equal or better to than the assets compared to the Mogi mill and they have 3 different technologies. TAD, which is a very premium technology that is not present in Brazil, entity and conventional. So we're going to cover all the different technologies that are available nowadays globally. The sales of regions are going to be very concentrated on Europe and the top 8 countries represent roughly 7% of net sales. Beyond the assets we're also -- the JV will also have very premium brands. We're talking about global brands as Clinics and Scott that will have a license for 30 years royalty-free for the JV. And also 40 local brands, and 1 of them, very special, which is Andrex which is more premium in the United Kingdom, just as Neve with the premiumness of Neve in Brazil. Those local brands will be completely transferred to the JV and they will be managed with all the rights by the JV. Over the last 2 years, we have been working on the efficiency improvements in the Mogi mill. And we have achieved very substantial benefits in cash cost reduction in -- around 46% and also production volume increased around 22%. These were obtained over the last 2 years. And when we take part of these improvements and apply it to the JV, we see and it's part not the total we see an opportunity to increase efficiency over $175 million annually. And this will give us a very good return, as Marcos has already mentioned, of 15.5%. So now I will hand over to Marcos to continue.

Okay. Now talking about how the company -- how Suzano will look like following this JV. We believe that the downstream integration will reduce the company's free cash flow volatility and also diversifies our portfolio. In terms of net revenues, pulp will be reduced from close to 80% of our revenues to 60% following the JV. And here, we are assuming that we're going to be consolidating 100% of the company's revenues, of the JV's revenues. In terms of EBITDA -- the diversification will mean that pulp will represent a bit less than 80% of our total EBITDA following the JV. While the consumer goods business unit will represent nearly 15% and the paper business unit will continue to represent around 10%. In terms of net revenue by region, what we will see is a change in terms of the most relevant regions for Suzano in terms of sales destination. Following the JV, Europe and the U.K. will now represent more than 30% of our revenues, and Asia will be representing a bit less than 30%. Also importantly to mention that we have other regions in which we have countries like Israel, South Africa, New Zealand, diversifying our revenues even further. Now I'd like to hand over to Beto for his final remarks.

As usual, in this kind of deal, we are expecting a maximum of 12 months to have all the approval from regulatory authorities. So we are expecting the closing for mid-2026. Just adding information regarding what Luis just said that 70% of the net sales is concentrated on 8 countries and also 75% of the EBITDA and cash generation are concentrating on those 8 countries. So during the period between signing and closing what do we have to do is make sure that we're going to start in 1 year from now with the right team, with the right people, with a combination of the team that KC has today also bringing people from Suzano as well that can, together with them, have the right skills to run this business in the future. The other thing that I must mention to you that we must focus now on 2 main priorities at Suzano. The first one, it's in our competitiveness project which keep increasing the level of competitiveness of our core business. By the way, this company will be completely, let's say, independent with its own governance, based in the Netherlands which is the -- will be the headquarter, and we must make sure that the new business will not generate any kind of distraction here in our core business. We must keep focus on running our core business, must keep increasing efficiency must keep in our journey of increasing competitiveness of this operation here in Brazil. So this is 1 clear priority. And the second 1 is, of course, make sure that once we have the closing, we're going to be able to extract the value that we are planning as fast as we can. And -- so that's the priority. So regarding M&As, I do not see in the next 2, 3 years, any kind of focus on new initiatives. We have to focus on those ones. Of course, this excludes Lenzing that we know -- we don't know what we're going to do yet. We still analyze it, but we have until 2028 to exercise the call that we have over there. So we already have operation in U.S. that we are learning the market, the country, the competitive environment we have in the textile market Lenzing which is something that we're going to keep working to analyze the business and take or not a decision in the right moment. We have now in the tissue this business, and of course, we also have a priority, as I already have mentioned to you, in the fluff, where we see a much more organic move than any other movement through M&A. So considering that, we see all the avenues in the value chains cover in terms of initiatives. So what we have to do now in the next years is to make sure that we're going to deliver and not look for let's say, other's M&A movement. This is what we are doing right now. This is where we're going to focus our effort from now on. Having said that, thank you very much. I will hand over to the Q&A to make sure that we can cover all the questions that you might have. Thank you.

[Operator Instructions] Our first question comes from Rodolfo Angele with JPMorgan.

[Foreign Language] Let me just make my questions here. So -- my number 1 question is you mentioned that there is a 3-year period and then you'll be able to acquire the 49% that will remain in the hands of KC in the short term. So is there anything around how this will happen? Are there targets? Is there discussion on pricing? Is it the same price? How will that happen in 3 years' time? And my second question is, of course, in an acquisition as important like this. And given how much we've discussed things such as fiber to fiber, I wanted to hear a little bit more in detail the strategies to kind of a lower cost, what can be applied in the acquired asset to replicate the successful story that we also saw in the acquisition of the assets in Mogi. Those are my 2 questions.

Rodolfo, Marcos here. Thank you for your question. Regarding our call option, we have the option to acquire the 49% remaining stake at a very similar multiple than what we are paying at the first 51% of the company. So it's a pre-agreed multiple that's already set and very similar to the 1 that we paid for the initial part of the transaction. Now I'll pass to Luis to answer your -- the second part of your question.

The mills that we visited around the globe, they have exactly the same standard, the same as quality of assets and also the same culture as we had in Mogi mill and that we have been working for 2 years. So many of the operations improvements that we achieved here, which involves procurement, industrial efficiencies and logistics. We have this they can be applied also to the mills that we have around the globe. So the idea is to replicate what we have here and what we have been working for 2 years in Brazil to replicate that around the globe also -- but also on a more widespread time compared to what we did here in Brazil because of the complexity to do it in several regions.

Our next question comes from Leo Correa with BTG.

A couple of questions here. The first one, Beto, just taking your last -- I think the last part of what you were saying, which I think is very important, right? You're basically saying that -- and please correct me if I misunderstood, okay? You had a target of M&A -- total M&A through 2026 of $3 billion, right? I think there was a series of jitters and noise, some speculation over the past weeks on a deal. Some people were speculating higher numbers. Even last night, Wall Street Journal was talking about a higher deal of $3.5 billion. You guys announced this JV, right, with an initial purchase of $1.7 billion. And from your tone, you're basically stating that given the complexities of everything that's being done with this move, you have a lot on your plate and further M&A at this point, excluding Lenzing, right? You're basically saying that is highly unlikely. So I just wanted to confirm that understanding if that is correct. You're basically minimizing the possibility of additional M&A through 2026. I just wanted to confirm that. Second point, just on the -- still on the strategy, right? I mean, over the past several months, Suzano was clear in communication that the U.S. was a strategic priority, right? You made some acquisitions of Pactiv in the U.S. There were small movements. The U.S. was a preference, right, which I think probably still is the case. I just wanted to check with you, given this move with Kimberly-Clark is an ex U.S. move you're adding so many new jurisdictions. Does the U.S. strategy specifically change? Those are the questions.

Leo, thank you for your question. A couple of things. You are almost 100% right. The only thing that I want to clarify that we didn't put the $3 billion as a target. We mentioned this as a limit -- so it doesn't mean that we have to invest $3 billion in M&A. That was a kind of limit that we set during our last conference call. So that's the first thing. The other thing is that you are completely right, and we say -- when you say that with this acquisition, we already have a lot of things in the place to address. So I would consider as priorities here in Suzano, as I mentioned, the competitiveness journey; and secondly, making sure that we're going to run that we're going to digest this movement in the right way and extract all the efficiency that we see in this portfolio that we are bringing to our company. We will concentrate, yes, in the next, let's say, 2, 3 years. I think it's a good on those assets. Does it mean that U.S. is not a priority, but we have to make choices. And once this was the deal that we were able to do it under the conditions that we expect to do it, and this includes returns , and this includes the impact in our leverage, as I have been mentioned to you, we're going to have to wait to do any further movements when we talk about M&A. We have to be concentrated on that 1 at this time.

Our next question comes from Daniel Sasson with Itau.

My first question is related to the assets that you acquired in 14 countries or more specifically, if there are any chances that you could sales-specific operations even sooner than the 3 years from which you're going to have -- you could exercise your call option, right? I mean if the current portfolio that you acquired is still subject to revisions, maybe 1 or 2 specific countries or specific operations could be sold to a third party even before your call option kicks in? And then maybe I'm not sure I think that was asked before, but I'm not sure if I've missed the answer. Can you quantify a little bit from the 1 million tons of tissue products that Kimberly currently produces. How much of -- 100% of that is soft. So I mean, you see a potential 1 million-ton fiber-to-fiber substitution happening here? And what that could mean if this is successful in your view to Kimberly-Clark's competitors, right? I mean do you think that this movement could prompt Kimberly-Clark's competitors to do the same. And in the end of the day, you're actually going to benefit from a faster fiber-to-fiber substitution in the industry than you were expecting before? Is that part of your thesis here?

Daniel, Marcos here. Answering your first question regarding potential asset sales. First and most important, the focus of the company right now is, for sure, on the closing of the transaction, which would still take close to a year, as Beto mentioned, following the closing, we will be focusing on integrating all of these assets and trying to extract the efficiency gains that we are also visualizing for the JV, but of course, always in a JV, we could analyze in the future opportunities that add value to both parties. But this will be considered only in the future. So we're not thinking about that at this moment.

Daniel, following up on the second question, out of the 1 million tons, we have recycled hardwood and softwood. We have the [ tree, tree ones ] and it varies by country and by region. As we have seen throughout the world, there is a movement of fiber-to-fiber movement that we see in our clients in all the regions. And here, at those plants, it won't be different, and we will look at this cautiously.

Our next question comes from Jonathan Brandt with HSBC.

I wanted to sort of get an understanding of how you're seeing tissue demand in the countries that you just bought the tissue assets in. So I guess that's predominantly Europe. It appears to be a slower-growth region than others. If we look at sort of KC's consensus was expecting sales to drop the assets that you just bought, and I think they dropped in 2024 as well. So I'm just trying to understand the other assets that you bought in Brazil was much higher growth. So does this sort of represent a new challenge for you? And are you depending on growth to reach that 15.5% IRR? Or do you think you'll get there mostly from synergies? And I guess my second question, just as a -- relates to the option. Is this option good into perpetuity? Or is there an expiration date.

Okay. Thanks, Jonathan. We've seen -- let's talk about the tissue market. The biggest market that we have in the globe, the market is 44 million tons. The biggest market is Asia. And North America and Europe are roughly the same size. We've seen a growth in Europe and North America, around 2.5%. And what we are estimating is that the 15.5% return on investment will come from implementing the efficiency in all the operations, but also growing volume as we've seen the market is growing and maintaining market share.

If I can just complement what Luis just said, Jonathan, we are considering in terms of growth, the same pace that happened in the market in the last many years. So there's no -- so those are -- the tissue is a resilient market, and we are not changing any kind of premises here. What we are considering is growing even less than the market in our premises, so -- and trying to keep market share at this moment. So this is the premise that we are considering.

Jonathan, regarding your second question, the call exercise does not have any expiration date.

Our next question comes from Caio Greiner with UBS.

Two quick questions from me. The first 1 on diversification. I know that you mentioned in the past that there is no actual target for EBITDA or net revenue diversification in Suzano and that the focus is on value creation. But you do talk a lot about diversification. There's a slide on it for -- in the presentation. So my question is thinking about the strategy longer term, does the current breakdown meet your diversification criteria. Should we expect the company to continue pursuing more diversification? Should we see somewhere like 50% diversification target as feasible as the company's desire. I wanted to hear a little bit more about your longer term beyond those 2 to 3 years strategy for diversification. My second question regarding the geographies. And one of the main pushbacks that we have been getting is on the geographical footprint, maybe because this is the main difference to the acquisition of Kimberly-Clark's assets in Brazil, which was very successful because here in Brazil, this is your backyard. This is a known geography, but other countries, 14 countries, they have different legislations, cultures, which could be challenging. So I just wanted to understand what can the company do to overcome these challenges and for investors to be confident that they can use the Kimberly-Clark Brazil track record to estimate how much Suzano can extract value from this acquisition.

Thank you, Caio. Let me start with the first one. Regarding diversification. And Again, you are completely right. There is no target in terms of diversification. We are really analyzing opportunity that can generate value and at the right level of returns. I think a good way to see that we do not have a target in terms of diversification is that there is no opportunities -- further opportunities in our pipelines to do any further movement abroad, as I mentioned before. We are very concentrated here now. And again, making this deal happen. And focus here also in our core operation. And regarding the -- Marcos, you can take the first question.

The second 1 on the geographical footprint. I would say that there are many ways that we are -- we built this transaction in order to mitigate the risks, okay? The first and most important 1 is the structure of the JV, right? We're talking about a 51% JV for us, stake in JV for us and 49% for the former operator of all of those assets. Second, we know KC's culture because of what we have done in Brazil. So that reduces the integration risk in the future as well. Second, third, we were conservative on the assumption that we use in our model for the efficiency gains. So we are using less than half of the efficiency gains that we were able to extract from the Brazilian operation in these foreign countries. And lastly, we also have a very clear and separate structure between our Suzano's operations and also the JV's operation. So we will have a completely focused -- and of course, with Suzano having the majority of the Board in this new entity in the JV and also having the right to appoint the CEO and CFO of this company, but there will be 2 completely separate companies, and is also, in our view, mitigates the risk of implementing those results that we're expecting for this company.

Thank you, Marc. Maybe the final comment is that 1 very important thing that we consider in this kind of deal, it's understanding carefully the level of the assets. So we had the chance to visit 100% of the assets very carefully and we were very pleased regarding what we find in terms of the assets. So this is something that we always take into account to understand any kind of CapEx requirement in the future to maintain those assets. So this is something else that we must take into account as well to mitigate risk.

And then another point regarding this since the fourth quarter last year, KC has already created 3 independent businesses. And the business that we are discussing now is already operating as an independent unit since the fourth quarter last year. So it will also made it easier for -- and make the transfer easier as we move to the closing. .

Our next question comes from Rafael Barcellos with Bradesco BBI.

My first question is about synergies. I mean you mentioned $175 million in potential synergies. Could you please provide the breakdown of these synergies? I mean how much would be fiber to fiber, how much is commercial? I don't know. I mean, any further details here in terms of the breakdown of the estimation here could be helpful. And my second question is about the structure and the governance of the JV. So I mean, what will be the timing and how will be the process of choosing the CEO and CFO of the JV. Other than that, I mean, I wanted to check if you have already decided which Suzano executive will be part of the Board of Directors of the JV. And lastly, I understand that Suzano can appoint the majority of the Board members, can appoint the CEO and CFO, but I wanted to understand which type of special rights Kimberly-Clark has, if any, and of course, whether you have decided any kind of change in terms of pulp commercial relationship between Suzano and the JV.

To highlight the $175 million, as we estimated, does not include any potential increase in net sales. So this is absolutely focused on operational gains for all the operations throughout the world. We have a breakdown on the presentation, and I can give you some examples. So the biggest chunk comes from procurement as we see that there is an opportunity to move from global contracts to local sourcing, which can be in certain points, a source of cost reduction for many of the contracts. So procurement will be an area that we expect to revise all the contracts and get some of the synergies by having a different strategy as well. Industrial, the industrial part is also an important one. And here, we're going to focus on specific consumption. This is something one of the core capabilities of Suzano. Suzano is highly known for its operational and industrial capabilities. So by using the Suzano model and applying it to run the mills we think that we can also improve the operational efficiency of the mills as well. So these are 2 of the examples that we can get from this transaction.

Thank you, Luis. Regarding the governance, I'll say that the best way to answer is that KC rights, it's the standard minority rights to preserve their investment and cooperation to make the JV a success. And we have the right to indicate the CEO and CFO, but we are talking about Suzano also making sure that we're going to have the right people in the whole C level of the company. So that's what we are looking to decide between the signing and the closing, those names are not decided yet.

Our next question comes from Alfonso Salazar with Scotiabank.

I have 2 questions. The first 1 is regarding the liabilities involved. I just want to confirm is a part of the assets that you mentioned, are there any liabilities in this transaction that we need to consider? And the second question is regarding the product, Leo asked a moment ago about the U.S.A being an attractive market. But I want to know -- dig a little bit deeper into the product preference for Suzano. Clearly, now you're going for tissue assets. But what about packaging and to what extent this decision considered the trade war and the uncertainty of future implications of packaging rates and because of the trade war? And how do you see that unfolding for your strategy in the long term? Tissue and packaging as part of your portfolio.

The transaction does not have any material liabilities. Remember that this is a debt-free transaction. So we're talking about a $3.4 billion enterprise value. But also important to mention that we already agreed with our partner to have a target net leverage of the new company of around 2x net debt to EBITDA. So considering their 2004 (sic) [ 2024 ] recurring EBITDA of above $500 million. This company could have, by the closing a net debt of around $1 billion. And if that's the case, the equity would be $2.4 billion and the total disbursement for Suzano and the transaction will be $1.2 billion, okay? That's a possibility that we also have, and we already kind of agreed with our partner, okay? But that's to be done throughout the closing phase of the transaction.

Regarding the strategy, when we look for tissue and for packaging, as you mentioned, the tissue is a very regional market. So we do not see any material impact on the trade flow for tissue since it's very concentrated on a regional demand. And besides that, it's a very inelastic product, which the demand do not behave with any correlation, let's say, with the growth of the economy, with the economy growth. So that's the first thing, which is not the same for paper and packaging, which, yes, can be affected by any change on the global trade. So as I mentioned before, we have this first movement in U.S. And the plan, it's now making sure that we finalize the turnaround that we have in the U.S., keep understanding the market. And of course, we would like in the future to have the right level of scale, considering that it's a small movement in U.S. But again, at this moment, the focus is to not do any further movement abroad, it's very concentrated -- it's concentrated on what we have in the table now.

Our next question comes from Caio Ribeiro with Bank of America.

So 2 questions here from my side. First off, going back to the call option. I just wanted to see if you can clarify what the conditions are to execute that call option before the third year anniversary of the transaction? And then secondly, back on the synergies front. I just wanted to see if you can give some more color on the pace at which you expect to capture those synergies over the coming years until you reach that $175 million level. And if there is any CapEx associated that's needed to achieve those synergies.

Caio, thanks for the question. Regarding the synergies, we are estimating 3 years to capture the full $175 million in synergies. And regarding CapEx, we don't envision any major CapEx. So we are applying the sustained CapEx the same level that the company has plus a CapEx for integration of IT systems that we might have in the future. But for plants, there won't be any CapEx different from the average that the company has.

Caio, can you repeat the first part of your question, please?

Yes. It was just on the call option to see if you can clarify what the conditions are to execute that call option before the third year anniversary of the transaction.

Okay. This -- so -- we're actually focused on the call from the year 3 onwards, right? That's the main condition here that we have. There are -- there could be opportunities to exercise the call before that. But that's -- we will have to discuss with our partner before that happened, okay?

That's clear. And just as a quick follow-up here, what is the normal level of CapEx or CapEx per ton that you estimate for the asset going forward?

The average annual sustained CapEx is $100 million.

Our next question comes from Eugenia Cavalheiro with Morgan Stanley.

Two questions on my end. I think both were a bit addressed by you, but I think I wanted to get a bit more detailed view on each of them. The first would be on sourcing of the fiber from the current Kimberly-Clark division. So could you give us a bit more detail of the breakdown between softwood and hardwood? And how much of that you think you can do the fiber to fiber substitution, just for us to try to understand a bit more the synergies coming from that end. And maybe how much of cost reduction we could see from a better sourcing of fiber on the JV. The second one, if we go a year back today, you were involved in talks to potentially acquire International Paper which was a completely different business. If we think about the market, which was packaging U.S., so very different from the transaction that you're doing now. I just wanted to try to see with you what changed ever since and what is the new view of the company for such a shift on strategy and how you're seeing potential investments in the U.S. packaging market, for example.

Eugenia, thank you for your question. Regarding the sourcing of fiber, it's a very sensitive information, and we are not disclosing more details about this.

Yes. And Eugenia, your second question was related to the previous transaction that we analyzed last year. As we have been stating to the market, that was a very specific and opportunistic transaction that we saw at that moment. And as we also mentioned, we had a very clear reservation value for that transaction, in which we didn't -- we were not able to reach not even close to an agreement on that. So we -- it's completely disregarded in our strategy right now. But also I would like to get that point to reinforce that we also had since the beginning year and reaffirm the reservation value is a very important thing to us. And since the beginning, we were sticking to the amount of -- to the multiple and to the price that we would be paying for this asset, okay? On this specific transaction of the JV that we just announced.

Maybe also it's important to build on your question and say that this was a deal that was proposed to the Board by the management and IP was exactly the same. But as Marcos said, was a very specific window, a very specific opportunity that we -- that was the rationale behind the approach. So this is the way that we operate here in our governance. And in this specific case, we were able to succeed in terms of achieving all the premises in terms of value creation and in terms of return and, of course, risk management. So just want to also complement your question with those information. .

Our next question comes from Yuri Pereira with Santander.

Do you have any estimate about what was the free cash flow generation from those assets last year.

We have a rough estimate here of around $300 million, and that considers an EBITDA of -- a recurring EBITDA of around $525 million. CapEx, as Luis mentioned, of around $100 million. And then financial expenses, taxes -- regular taxes of around 25% on average for the whole structure operation, and financial expenses, regular financial expenses. So that would get to close to $300 million.

Our next question comes from Cole Hathorn with Jefferies.

I'd just like to understand how the acquisition of this downstream tissue business might change how you manage your pulp inventories -- how do you -- what are the benefits of being able to manage your pulp inventories going forward with more kind of downstream integration? And does this have any changes on how you are going to run your inventories near term before this deal completes.

Thank you for the question. We do not see any change at all in the way that we manage here the pulp business. That will be a completely independent JV with independent governance. So we do not see any change at all. Thank you very much.

Our next question comes from Rodolfo Angele with JPMorgan.

I just wanted to hear from Marcos a little bit more detail. Not sure if I got it correctly. So the $3.4 billion is equity and enterprise value. So the idea is to lever it up and eventually end up the disbursement being diminished. Can you comment a little bit more, Marcos?

thank you for your question. Yes. So the $3.4 billion is enterprise value with debt free, right, with 0 net debt, okay? We already agreed with KC that we should have some leverage at the JV to make the company more capital efficiency -- efficient, okay? So considering the company's last year EBITDA as a reference of around a little bit more than $500 million. The JV could have $1 billion of net debt, and this could even occur before the closing, okay? And if that's the case, the $3.4 billion EV with $1 billion of net debt, this would mean $2.4 billion of equity and our disbursement at the closing would be reduced to $1.2 billion. This is a possibility that is being discussed with our partner.

The Q&A section is over. We would like to hand the floor back to Mr. Beto Abreu for his final remarks.

Thank you very much, everyone, to attending the call at this moment. Any further question, our -- our I team is already -- always available to attend any further questions. Thank you very much for all. Bye-bye.

The Suzano's investor conference call is concluded. The Investor Relations department is available to answer further questions you may have. Thank you, and have a good day.