After sweetening its original bid by 5%, International Paper (IP) unveiled a $3.48 billion deal on Tuesday to acquire rival Temple-Inland (TIN).

If increasingly skeptical antitrust regulators sign off on the transaction, International Papers leading stake in the U.S. industrial packaging market would climb to almost 40%.

International Paper said it has agreed to pay $32 a share in cash for Austin-based Temple, up from $30.60 offered in June. The transaction also includes the assumption of $600 million in Temple debt.

"The strategic benefits of this combination are clear and we are pleased to be able to move forward on terms that are financially attractive for both sets of shareholders, International Paper CEO John Faraci said in a statement. Acquiring Temple-Inland enhances our ability to generate additional cash flow while maintaining our strong balance sheet.

The deal is expected to boost International Papers bottom line in its first year of closing, which is seen happening in the first quarter of 2012. The companies also believe the combination will create annual synergies of $300 million within two years of closing.

Its not clear how regulators will weigh in on this deal, especially in the wake of the Justice Departments decision last week to oppose AT&Ts (T) $39 billion buyout of T-Mobile USA due to antitrust worries.

Shareholders didnt appear to be fretting too much about regulatory concerns, bidding Temples stock 25.13% higher to $30.82 Tuesday afternoon. International papers shares rallied 7.30% to $27.34.

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