Weyerhaeuser and Plum Creek, two timber-owning enterprises deeply rooted in the Pacific Northwest, are merging to form what they call “the world’s premiere timberland and forest-products company.”
Weyerhaeuser is buying Plum Creek for $8.4 billion to form the nation’s largest private owner of timberland, the Seattle-area firms announced Sunday.
The combined company will own more than 13 million acres of U.S. timberland and have a market capitalization of $23 billion based on current prices, ranking it sixth among publicly traded companies based in Washington state.
“We saw a unique opportunity to combine the two industry leaders in a way that will generate substantial value for shareholders by creating the world’s premiere timberland and forest-products company,” Weyerhaeuser CEO Doyle Simons said in an interview Sunday.
Revenues (2014): $7.4 billion
Net income (2014): $1.8 billion
Timberlands: Owns almost 7 million acres
Other operations: Makes lumber, plywood and wood products; now looking at “strategic alternatives” for paper and fiber operations, including a mill in Longview and six others in U.S. and Canada.
Revenue (2014): $1.5 billion
Net income (2014): $214 million
Timberlands: Owns about 6 million acres in 19 states
Other operations: Half a dozen lumber, plywood and fiberboard mills; part interest in eight quarries in Georgia and S.C.; collects royalties on coal, natural gas, mineral and wind operations on its lands.
Plum Creek chief Rick Holley will become the company’s nonexecutive chairman, while Simons will be president and CEO.
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Analysts said it’s an epic consolidation move in an otherwise fragmented industry.
“In the private timberland industry, they become a Goliath,” said Steven Chercover, a senior research analyst at brokerage D.A. Davidson & Co. “This couldn’t get any bigger.”
Chercover said he’d expect the companies to cut a big chunk of duplicated overhead costs. The firms said they anticipate annual “cost synergies” of $100 million from the merger.
Plum Creek, which is based at Two Union Square in downtown Seattle, is the smaller of the two companies, with 1,200 employees.
Weyerhaeuser, which has 12,800 employees worldwide and is based in Federal Way, plans to move its headquarters next fall into a new 150,000-square-foot building going up at 200 Occidental Ave. S. in Pioneer Square.
Asked about layoffs, Simons acknowledged Sunday there is “some overlap in terms of people,” but said it’s too early to estimate how many positions would be eliminated.
Holley said the combination of Plum Creek’s 6.2 million acres and Weyerhaeuser’s 7 million acres creates one of the world’s largest private timberland owners.
“These are the best timberlands from a productivity standpoint in the U.S.,” Holley said.
Weyerhaeuser was formed in 1900 in Tacoma by Frederick Weyerhaeuser and 15 partners when they bought 900,000 acres of timberland. One of the region’s oldest and most iconic corporations, Weyerhaeuser has transformed its model from a vertically integrated conglomerate to a real-estate investment trust that focuses mainly on selling timber.
Plum Creek traces its heritage to the 1930s, when a Minnesota lumber businessman named D.C. Dunham moved his mill to Montana. It was acquired by the Northern Pacific Railway, which was merged into Burlington Northern Railway.
Plum Creek became independent in the late 1980s as a spinoff of Burlington Resources, itself spun off from the railroad company.
Its highly visible logging operations in local mountain passes led former U.S. Rep. Rod Chandler to brand it “the Darth Vader of the state of Washington.”
During the 1990s, Plum Creek changed some of its practices in the Pacific Northwest and aggressively added timberlands in the South.
It was the first timber company to convert to a real estate investment trust, a form of corporate organization that allows a company to save on taxes and pass more income on to shareholders. Others followed that step, including Weyerhaeuser.
Analysts have been waiting for consolidation to sweep the timber industry, which saw demand crater after the last housing bust. Many homebuilders went bankrupt. Loggers and haulers left the business, too. And lumber imports from Canada didn’t help.
In the long run, Plum Creek and Weyerhaeuser officials said, they expect housing starts will return to normal levels, though it’s unclear how long that will take.
Simons said the combined company will focus on the domestic market, though it also has “very important” customers for exported logs in Japan and China.
Weyerhaeuser also plans to explore the possibility of selling or spinning off its cellulose-fibers business segment, which produced $1.9 billion in sales in 2014.
A sale would mean Weyerhaeuser would no longer be one of the world’s largest producers of absorbent fluff pulp, which is used in diapers.
The segment includes a plant in Longview that makes packaging for liquids, like those used in juice boxes.
For each Plum Creek share, stockholders will receive 1.6 shares of Weyerhaeuser. That will give those shareholders about 35 percent ownership in the combined operation, the companies said.
Plum Creek shareholders should see a 13 percent dividend increase from what they currently receive, based on Weyerhaeuser’s current annual dividend of $1.24 a share, officials said.
Following shareholder approval, the merger is expected to close by March or April, with the new company bearing the Weyerhaeuser name.
Company officials said they don’t expect antitrust regulators will challenge the merger because the new company’s market share is a fraction of the 500 million acres of privately owned U.S. timberland.
Chercover, the industry analyst, said the merger looks like a fair deal for Plum Creek’s shareholders and preserves the region’s historic role in wood products.
“Seattle was the capital of the timber industry and it still is,” he said.
This article, which was originally published Nov. 8, 2015, was corrected the next day. The original story said Plum Creek had been acquired by Northern Railroad. The correct name is Northern Pacific Railway.