Graphic Packaging (GPK), a manufacturer of paper-based packaging solutions for the food, beverage, foodservice, and consumer products companies, wants investors to perceive it as a sustainable alternative to plastic packaging. In its 2020 10-K, Graphic Packaging includes the word “sustainable” 16 times, up from 5 the previous year.

Though the company’s apparent effort to better appeal to ESG investors is notable, it’s also important that investors to consider that International Paper (IP)— one GPK’s largest shareholders— is reducing its stake in GPK. In 2017, International Paper acquired a 20.5% stake in GPK’s international subsidiary, which ultimately increased to 21.6%. The deal allows IP to exchange its ownership units for GPK stock or cash.

In its latest annual report, GPK announced its had begin the process of redeeming International Paper’s ownership units for cash:

“Per the agreement between the parties, on January 29, 2020, GPIP purchased 15.1 million partnership units from IP for $250 million in cash. As a result, IP’s ownership interest in GPIP decreased to 18.3% as of January 29, 2020.”

Six months later, according to the annual report, International Paper notified GPK of its intent to continue cashing out:

“Per the agreement between the parties, on August 13, 2020, GPIP purchased 17.4 million partnership units from IP for $250 million in cash, which included full redemption of the remaining 3.1 million partnership units that were required to be redeemed in cash. As a result, IP's ownership interest in GPIP decreased to 14.5% as of August 13, 2020.”

Investors might expect additional redemptions. Following $500 million in 2020, GPK disclosed International Paper can continue reducing its stake every 180 days:

“Unless otherwise negotiated by the parties, IP’s next opportunity to exchange its partnership units begins 180 days from the August 13, 2020 purchase date and is limited to the lesser of $250 million or 25% of the units owned immediately following the initial transaction, subject to a minimum. IP will have further opportunities to exchange its partnership units beginning 180 days after each purchase date.

The next opportunity for International Paper, by our calculation, was February 9, 2021. The latest Graphics Packaging 10-K was filed one week later, on February 16, 2021. The filing does not say if an additional pay out was made to International Paper. However, the annual does indicate that in lieu of $250 million, it may instead use shares for future redemptions:

“The Company may choose to satisfy these exchanges using shares of its common stock, cash, or a combination thereof.”

The $500 million in payments, according to GPK, was financed via two debt offerings and a draw on its revolver. In 2020, GPK also repurchased $315 million of its own shares and paid out $102.8 million in dividends.