The paper lining in Kellogg cereal boxes, peel-off strips on Band-Aids and airline tickets have one thing in common: millions of them are made by the James River Corp., a 13-year-old, Richmond paper products manufacturer.

And, with the company's recent signing of a formal letter of intent to purchase American Can Co.'s Dixie-Northern division, Dixie cups, as well as paper towels and tissues, will soon become part of the James River family.

After its entry into the single-service, disposable food container business, James River must do battle with Baltimore's Maryland Cup Corp. and Lily Cup, a division of Owens-Illinois, in this highly competitive consumer market.

"We're delighted with the American Can acquisition," says Robert C. Williams, James River's president and chief operating officer, who helped found the firm in April 1969.

"And since they've proven that they do their job well, the Dixie-Northern team will continue to operate as they always have."

In addition to entering these new areas, James River also acquired long-term contractual rights to the pulpwood supply from American Can's timberlands. "Now, we'll be 70 percent integrated; that is, we'll have to buy only 30 percent of our annual virgin pulp requirements," Williams said. "Before, we were only 50 percent integrated."

The total purchase price is $420 million. In order to pay American Can $332 million in cash, James River has incurred new long-term debt. The remainder of the transaction consists of $54 million in James River common stock and $34 million in preferred stock of a James River subsidiary. The preferred is convertible into common stock. American Can will presumably use the money to expand its new role of offering financial services to consumers.

American Can will control 21 percent of James River's voting stock, which is traded on the New York Stock Exchange. Institutions own another 30 percent, with Citicorp Venture Capital accounting for half these shares. Insiders own another 18 percent, with the remaining 31 percent available to individual investors.

Making major acquisitions is not new to James River, which has averaged one addition a year.

"Essentially what we've done," explains Stephen H. Garnett, James River's director of public affairs, "is to buy mills which were on the fringe in making commodity-grade paper. They have been relatively small and their competitors were able to make a lot more paper and sell it at a lower cost." Ultimately, James River adapts the machinery to make a higher quality, specialty-grade paper.

Commodity-grade paper is mass produced and sold to customers in vast quantities. Specialty-grade paper is made in response to a specific order from a customer. James River has made its mark in the specialty paper market.

On sales of $5.4 million, James River earned $163,000 in its first year of operation beginning in April, 1969. Its latest figures, for the nine months ended Jan. 24, show sales at $565.6 million, with net income of $15,645,000 ($1.33 per share). In the same period a year earlier it earned $6,805,000 (66 cents) on sales of $356.6 million. James River attributed most of the gain to results of the Brown Co., which it acquired in late 1980. Settlement of an antitrust action also added $3.4 million to profits in the latest period.

For the quarter ended Jan. 24, net income fell to $4,391,000 (35 cents) from $4,664,000 (39 cents) as sales slipped to $184.3 million from $187.3 million. The company attributes these decreases to lower unit volume, resulting from softness in demand, with customers extending Thanksgiving and Christmas facility shutdowns, in addition to trimming their year-end inventories.

Sales in 1981 for the Dixie-Northern division were approximately $1 billion.

Brenton S. Halsey, chairman and chief executive officer, joined Williams and a group of associates in purchasing the Albemarle Paper operation in 1969, which marked the beginning of James River. Halsey is a chemical engineer, Williams a mechanical engineer.

Williams is in charge of overall day-to-day operations and the firm's 8,200 employes in 14 subsidiaries. Only 200 employes work at its headquarters along the James River. Overlooking this facility is the historic Hollywood Cemetery, where former presidents James Monroe and John Tyler, as well as Jefferson Davis, president of the Confederacy, are buried. With the addition of Dixie-Northern, James River will employ 18,188 people.

George H. Boyd III, vice president of Kidder, Peabody & Co. in New York, says James River has done well primarily because "Halsey and Williams not only are good managers, with Halsey also dealing with the money men, but they also do have that great technical expertise. And, while the biggest firms couldn't be bothered with the specialty business, James River gives it great personal attention, which it requires."

Forbes Magazine, in its annual review of American industry, ranked James River first in the forest products' industry in the following categories for the past five years: return on equity, growth rate, and earnings per share. And there seem to be no indications that the company will soon relinquish its standing.

According to Williams, James River plans to take a breather on acquisitions. "Over the next five to seven years, the major thrust of our company is to improve our internal efficiency primarily through the investment of approximately $800 million. Our growth will be internal."