Weyerhaeuser to buy Plum Creek

Creating $23B timber company

By Edward Krudy
Reuters

GREENVILLE — Weyerhaeuser Co. will purchase Plum Creek Timber Co. Inc. in a deal announced on Sunday that the two companies said would create a $23 billion timber, land and forest products company, the largest in the United States.

Courtesy of Weyerhaeuser

A Weyerhaeuser investor presentation represents the scope of its planned acquisition of timberland owner Plum Creek. Weyerhaeuser has mills elsewhere in the country and would gain Plum Creek’s Maine timberland in the deal.

The new company, which will keep the Weyerhaeuser name, will manage more than 13 million acres of timberland that will allow it to drive economies of scale and capitalize on the U.S. housing recovery, the companies said.

The merger combines the two largest owners of timberland in the U.S. Weyerhaeuser, based in Federal Way, Washington, manages 6.9 million acres, primarily in the Pacific Northwest.

Seattle-based Plum Creek owns about 6.2 million acres of timberlands located in over 19 states. That includes Plum Creek’s nearly 400,000 acres of land in the Moosehead Lake region of Maine, 16,900 of which has been targeted for development.

Greenville Town Manager John Simko said he hoped that the merger would signal the start of construction on Plum Creek’s plan to build up to 975 second homes and two resorts near Moosehead Lake in the next 30 years, or further investments in the Moosehead Lake region’s traditional forest-products industries, particularly logging and sawmill operations.

“I am trying to be optimistic here,” Simko said Monday. “Weyerhaeuser has remained more vertically integrated in the wood products industry than Plum Creek, so this does bring out that possibility. There are all sorts of different things they can do with wood products processing here.”

Plum Creek Chief Executive Officer Rick Holley said the merger makes good business sense.

“Both companies have historically looked to grow their timberland resource asset base, in others words to acquire more timberlands, so here’s an opportunity for both of us to accomplish that,” Holley said in a telephone interview.

Under the terms of the merger, Plum Creek’s shareholders, who will need to approve the deal, will receive 1.60 shares of Weyerhaeuser for each Plum Creek share. The companies said the exchange implies a premium of 13.8 percent to a weighted average price ratio of Plum Creek shares to Weyerhaeuser shares.

The transaction could amount to about $8.4 billion based on about 174 million Plum Creek shares outstanding and Weyerhaeuser’s closing price of $30.40 on Friday. The joint company’s equity value would amount to $23 billion. Plum Creek was not able to confirm that figure.

Holley said that combining the two companies, which operate as real estate investment trusts and are popular with asset managers seeking to hold timber in their portfolios, will be able to attract larger investors both at home and globally.

“If you want to invest in this asset class — and many, many do — this is where you go, to this new company,” Holley said.

Holley and Weyerhaeuser’s chief executive, Doyle Simons, said in a phone interview that they did not foresee any regulatory or shareholder obstacles to the deal, which they expect to close late in the first quarter or earlier in the second quarter of 2016. The boards of both companies have unanimously backed the merger.

Holley will serve as nonexecutive chairman of Weyerhaeuser’s board.

Simons said cost synergies would amount to $100 million but that there would be “many synergies above and beyond that.”

Weyerhaeuser plans to spin off its cellulose fibers business, but Simons said that process was still in its early stages. He declined to say how much the business was worth.

Simko had contacted Plum Creek’s local representative, Luke Muzzy, on Monday for details. Neither Simko nor Muzzy had apparently heard from Plum Creek or Weyerhaeuser about the pending merger, Simko said.

“This is all really new. We would welcome the opportunity to talk to officials from the newly merged entity and discuss opportunities here,” Simko said.

Helen Schacht, owner of Mud Puddle Mercantile, a Greenville retail clothing and souvenir store, said she was sorry to hear of the merger. She is concerned, she said, that Plum Creek’s many negotiated land grants would “fall away” with the merger.

“Plum Creek have been very generous with their land grants and I wonder what will happen with those,” Schacht said. “They have made a lot of land public that they have promised in their negotiations.”

If land grant agreements are finalized, the merger should not affect them, said John Morrell, owner of Morrell’s Hardware & Homecenter of Greenville. But Morell’s concerns are similar to Schacht’s. He fears that Weyerhaeuser will invest in wind-to-energy facilities and other things that will make money for Weyerhaeuser and Plum Creek at the expense of the region’s beauty.

“They [Weyerhaeuser] have a very heavy industrial footprint. From what little I understand, they are heavy handed,” Morrell said. “They are just big. They do everything on a big scale. Hopefully I am wrong, I have no particular information that nobody else has, but it doesn’t feel good to me. They have no blood in their veins.”

Craig Watt, vice president of Indian Hill Trading Post and Supermarket, echoed Simko in that he was optimistic about the merger kickstarting construction. He said he hoped the Moosehead Lake Region Chamber of Commerce would seek more information about the merger and discuss it at its next meeting.

In a telephone interview from Florida, chamber President Everard Hayes doubted the matter would be discussed at the chamber meeting on Nov. 10 at 9 a.m., but said the chamber would address the merger eventually.

Weyerhaeuser said it intends to execute a $2.5 billion share repurchase program shortly after closing the deal. The company said the net financial impact would be as if the deal had been structured with about 70 percent stock and 30 percent cash.

The combined company expects to maintain Weyerhaeuser’s current annual dividend of $1.24 per common share, which would be a 13 percent increase on the dividend currently received by Plum Creek shareholders, the companies said.

Morgan Stanley is serving as financial adviser, and Cravath, Swaine & Moore is serving as legal counsel for Weyerhaeuser .

Goldman Sachs is lead financial adviser to Plum Creek. BofA Merrill Lynch also is a financial advisor to the company. Skadden, Arps, Slate, Meagher & Flom LLP is legal counsel.

Bangor Daily News writer Nick Sambides Jr. contributed to this report.