MEMPHIS, Tennessee (AP) — International Paper Co. is buying smaller rival Temple-Inland Inc. for $3.7 billion after sweetening its bid.

The transaction will give the combined company about 40 percent of the corrugated packaging materials market in North America. IP is the largest producer of corrugated packaging in North America, while Temple-Inland is the third-largest.

IP raised its bid to $32 per share for Temple-Inland, a 30 percent premium to its Friday closing price. This is higher than its previous bid of $30.60 per share in June, which its Austin, Texas, target had rejected as too low.

IP, which is based in Memphis, will also assume $600 million in debt.

Shares of Temple-Inland jumped $6.35, or 25.8 percent, to $30.98 in morning trading. I-P gained 73 cents, or 2.9 percent, to $26.22.

The proposed deal has been approved by the boards of both companies.

If shareholders and regulators approve, the transaction is expected to close in 2012's first quarter.

IP said Tuesday that the proposed buyout would likely add to its earnings the first year after the deal's completion. The transaction is also expected to save about $300 million a year within 24 months of closing.

Those savings are expected to come mostly from operations, freight, logistics, selling expense and overhead.

Temple-Inland stockholders will vote on the proposal during a special meeting. The company did not disclose if a date has been set for the meeting yet.