Iconic Northwest company Weyerhaeuser has survived not through sentimentality but by ruthless adaptation to changing conditions.
It’s tempting to say that business fads come and go in the Northwest, companies rise and fall, but Weyerhaeuser is eternal.
Eternal, at least, by the standards of American commerce. Not many enterprises founded in 1900 are still around, especially after the merger frenzy that began in the 1980s. Even Anheuser-Busch has been subsumed into a global kegger conglomeration.
The venerable large public corporations that remain independent are special. I think of Procter & Gamble, founded in 1837 and still in Cincinnati. State Street, the Boston bank, was established in 1792. In the Northwest, Paccar traces its history back to 1905 and Boeing to 1916.
Weyerhaeuser was the first homegrown giant that created great fortunes here, decades ahead of Microsoft millionaires. This wealth, estimated by Forbes to be $1.7 billion within the family, helped the Puget Sound region make the transition from the mere extraction of trees to more advanced commercial ventures.
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The company survived the Great Depression and became an international giant, going public in 1963 when Bill Gates was 8. It was massive, diversified, controversial with environmentalists and iconic to the Northwest.
Thus, one of my first tasks on arriving at The Seattle Times eight years ago was to learn to spell the company’s name by rote.
But with the housing crash and Great Recession, Weyerhaeuser seemed about to fade away. It laid off 1,500 headquarters employees in Federal Way as part of a vast restructuring that shed much of its pieces.
Then last year, Weyerhaeuser said it would leave Federal Way for a new headquarters in Seattle’s Pioneer Square. The headquarters had been in Tacoma until 1971. And last week, Weyerhaeuser said it would acquire crosstown rival Plum Creek Timber for $8.4 billion.
Weyerhaeuser is back to its roots, forests. Weyerhaeuser is eternal.
This makes for a nice story and even a true one, but it misses some critical pieces.
Weyerhaeuser survived not through sentimentality but by ruthless adaptation to changing conditions.
By the turn of the new century, Wall Street was hammering on the company for trailing its diversified competitors in returns to shareholders. Selling off divisions and closing mills was not enough to appease the big money managers and investors.
Eventually, in 2010, Weyerhaeuser became a real estate investment trust (REIT). In addition to tax advantages, most earnings are passed directly to shareholders. Wall Street was finally (mostly) happy.
The company also sold its real-estate division, founded in 1969, which once had promised a profitable return from homebuilding. That dream turned to ashes in the housing collapse beginning in 2007. Two years ago, Weyerhaeuser dumped it and didn’t look back.
In 1971, a suburban campus for car commuters seemed ideal, but it was driven by a moment in history. Moving to Seattle now allows it to take advantage of a new moment, when top talent wants to be in vibrant, walkable, transit-accessible downtowns.
The language of the Plum Creek deal is code for fealty to the “shareholder rights movement.” Weyerhaeuser CEO Doyle Simons said, “This new company will create tremendous benefit for shareholders as we drive value through shared best practices, economies of scale, cost synergies, operational excellence and disciplined capital allocation.”
About $100 million in annual cost savings is promised; that means layoffs, among other “synergies.”
Weyerhaeuser is betting on scale as the largest private owner of timberland in the United States, some 13 million acres. That’s about the size of New Jersey. The timber industry remains fragmented, so if this deal works Weyerhaeuser might go for others.
One competitor is Spokane’s Potlatch Corp., founded in 1903, which owns about 1.6 million acres. One of its founders was Frederick Weyerhaeuser.
Also, Weyerhaeuser isn’t just buying trees but financial expertise. Plum Creek became a REIT before Weyerhaeuser and its bean counters are highly respected.
Another bet is a revival of housing, not for Weyerhaeuser to be a builder but a supplier of wood products. Only 1.2 million housing starts were recorded in September compared with nearly 2.3 million in January 2006.
The latter number was plainly unsustainable, and much depends on the Federal Reserve’s next moves, but the industry has room to recover. Will shareholders be patient enough to wait?
Yet another opportunity is exports to Asia, even with a slow economy there now. For example, China is the largest importer of logs from the United States. America exported a record $9.7 billion in forest products in fiscal 2014 and exports had grown 80 percent over the previous five years.
As a U.S. Department of Agriculture report stated, “Money does grow on trees.”
Nobody knows that better than Weyerhaeuser.