MEMPHIS, TENN.—Unisource Worldwide and International Paper have signed a letter of intent to explore a possible merger of Unisource and Xpedx, International Paper's distribution unit.

"This is a unique opportunity for Xpedx and Unisource to create a new company that is stronger, more competitive and provide even greater value to customers," said John Faraci, chairman and chief executive officer of International Paper in a released statement. The merger would reportedly result in the largest distributor of office and copier paper in North America. 

Discussions were kick-started on April 19 when Unisource, based in Norcross, Georgia, approached Memphis-based International Paper. According to International Paper, the deal may come in the form of a Reverse Morris Trust; Xpedx's assets would be contributed to a newly-formed corporation, which would be spun off to International Paper shareholders and then immediately merged with Unisource.

Dividend payments and the size of relative ownership in the merged company are under negotiation. The letter of intent is non-binding and Unisource will remain a private company if no transaction is closed.

In an interview with Bloomberg Businessweek, Vancouver-based analyst Paul Quinn of RBC Capital Markets said that International Paper has been looking to resuscitate Xpedx for some time. Xpedx profits fell a reported 17% last year, and the company has been restructuring. "They've made progress, but they're clearly looking at other ways to boost profitability," Quinn said.

Citing "structural decline in the print marketplace," Xpedx shut down its Canadian operations in 2011 in a move that affected four distribution centres and about 100 employees. Unisouce Canada, a subsidiary of Unisource Worldwide, runs 18 locations across the country.