Franklin Resources spent $1.15 billion for a 7. 1 percent stake in Weyerhaeuser and urged the Federal Way lumber company to make changes...
Franklin Resources spent $1.15 billion for a 7.1 percent stake in Weyerhaeuser and urged the Federal Way lumber company to make changes to boost its stock.
San Mateo, Calif.-based Franklin Resources, the largest publicly held U.S. mutual-fund company, said in a regulatory filing yesterday that it bought 17 million shares from March 18 to April 28 through its Franklin Mutual Advisers unit.
Weyerhaeuser is “undervalued” and “steps can and should be taken” by the company “to increase the market valuation,” Franklin said in the filing with the Securities and Exchange Commission. Franklin said it is discussing alternatives with Weyerhaeuser on “realizing the unrecognized value.”
David Winters, president of Franklin Mutual Advisers, declined to say what strategies Franklin discussed with Weyerhaeuser managers. “Weyerhaeuser is a very fine company with excellent timber assets, and there is more they can do to surface value,” Winters said.
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“We’re long-term investors.”
Franklin, which manages $412.1 billion in assets, is now the second-biggest holder of Weyerhaeuser shares behind Capital Research & Management, which has 13 percent.
“The company welcomes the perspective of its shareholders and is open to examining potential value-creating strategies,” Weyerhaeuser said in a separate filing. “Weyerhaeuser believes it has the best assets in the industry and continually examines ways to optimize returns on its businesses.”
The Franklin news helped push Weyerhaeuser’s stock up $3.17, or 4.8 percent, to $68.61 yesterday.
Weyerhaeuser, which boosted its quarterly dividend 25 percent on April 21 to 50 cents a share, owns 6.2 million acres of timberlands in the U.S. that may be worth $6.8 billion, or $28 a share, UBS Securities analyst Richard Schneider said in a note yesterday. Weyerhaeuser’s market value is $16.7 billion.
Net income last year more than quadrupled to $1.28 billion on a 14 percent rise in sales to $22.7 billion, boosted by higher log and lumber prices, along with more home sales in its real-estate unit. Schneider values the company at $80 a share and says it may have free cash flow, or cash from operations less capital spending, of $1.15 billion this year.
The company “offers further opportunities for shareholders,” Schneider wrote.
Franklin Mutual is an investment advisory firm based in Short Hills, N.J., that Franklin Resources bought in 1996. At the time, money manager Michael Price ran Franklin Mutual as Heine Securities.
Price often bought stock in companies he deemed undervalued and then lobbied management to boost the share price. After Price acquired a 6.1 percent stake in Chase Manhattan and began to push for change, the bank agreed in 1995 to be acquired by Chemical Banking in a $13 billion deal.
Since Price resigned as chairman of Franklin Mutual in July 2001, the firm has been shaking up fewer companies. That changed in October, when Franklin Mutual disclosed that its funds held a 6.89 percent stake in Potlatch — making it the biggest shareholder of the Spokane lumber maker — and urged management to make several changes, such as selling the company’s paperboard assets.