Weyerhaeuser To Acquire MacMillan Bloedel

compiled June 1999
by George Draffan
Public Information Network
PO Box 95316, Seattle WA 98145-2316 USA

Footnoted version available by e-mail request

In June 1999, Weyerhaeuser and MacMillan Bloedel announced that they had reached an agreement for Weyerhaeuser to acquire MacMillan Bloedel in a stock transaction valued at approximately US$2.45 billion (CN$3.59 billion).

Weyerhaeuser is already the world's largest producer of softwood lumber and market pulp, and the second largest manufacturer of oriented strand board (OSB); the acquisition would also make Weyerhaeuser one of the top three producers of packaging.

Of its 35,000 North American employees, 5,900 currently work for Weyerhaeuser Canada, which is headquartered in Vancouver. Weyerhaeuser currently owns or manages 5.3 million acres of timberland (2.1 million hectares) throughout the United States, 243,000 acres in Uruguay, 62,500 acres in Australia, 193,000 acres in New Zealand, and timber licenses on 27 million acres (10.9 million hectares) in Canada, including:

MacMillan Bloedel is one of Canada's largest forest products companies with integrated operations in Canada, the United States and Mexico. The products of MacMillan Bloedel and its affiliate companies are marketed throughout the world and include lumber, panelboard, engineered lumber, containerboard and corrugated containers. MacMillan Bloedel currently employs 9,500 people, with 5,500 in Canada, and assets which include:

"MacMillan Bloedel acknowledged it had not sought a merger partner, but hailed the deal as proof its efforts to trim production costs and focus primarily on the building materials market had paid off. MacBlo spun off its pulp and paper operations last year as part of a reorganization orchestrated by CEO Tom Stephens, a turnaround specialist from the United States who took the helm of the then-lagging company in late 1997."

"Stephens said selling the venerable Canadian forest giant was not his primary plan when he took over as chief executive in late 1997 with orders from worried shareholders to stem the rising tide of red ink. 'I'm here today with mixed emotions,' Stephen's began his prepared remarks to announce MacBlo's $2.45 billion surprise, but friendly, purchase by Weyerhaeuser, the U.S. forest products giant. 'On the one hand I am absolutely delighted with the value this merger will create for our shareholders ... at the same time, however, we are also announcing a transition away from MacMillan Bloedel as a stand-alone icon of Canadian business,' Stephens told reporters. MacBlo's corporate roots in the mountains of western Canada go back to the 19th century, and it has long been one of the country's largest forestry companies. Many observers credit Arkansas-born Stephens, who will not join the merged company, with transforming both the company's bottom line and with shaking up western Canada's entire forestry industry... Stephens is credited with introducing a series of radical ideas, such as ending environmentally unpopular clear-cut logging in British Columbia's coastal rainforests and privatizing public timber lands. The former Manville Corp. chief was hired by MacMillan Bloedel in late 1997 to halt growing operating losses. He responded by cutting costs and selling many businesses not core to its building material product base... Stephens also moved to bridge gaps with the company's political enemies, such as environmental groups. 'We need to stop looking at everything as being a win-lose situation,' he told Reuters in an interview earlier this year. Stephen's high profile in the media rankled some in the industry. 'It's always, Tom Stephens this, and Tom Stephens that,' an executive at a rival firm was overheard saying at a recent forestry conference. Some of observers have questioned if Canadian and British Columbia regulators will balk at allowing the firm to be taken over by a U.S. company - even one that already has operations in Canada. 'It (Weyerhaeuser) has earned the social license to operate in this environment (Canada),' Stephens said, later echoing a another theme used by provincial officials in calling the deal an 'investment' in British Columbia's forest industry."

Stephens has also broken new political ground in leading efforts to make the B.C. government's stumpage system of assessing logging fees more market-oriented. He stunned the industry last year with plans to end environmentally unpopular clear-cut logging in the province. Rogel said Weyerhaeuser did not know enough about the logging initiative to commit to keeping it at his point. 'We've learned a lot in the last few weeks, but we've got a lot more to learn,' he said."

Rogel hinted Weyerhaeuser will become a more active opponent of limits on Canadian imports imposed by the U.S. Canada Softwood Lumber Accord.

"We believe that this combination will create the powerhouse in the industry," said Tom Stephens. "While we were not seeking a merger of this nature, the terms of this agreement provide an attractive premium to our shareholders, plus the opportunity to maintain an interest in the clear leader in the business. The value created for MacMillan Bloedel shareholders is a reflection of the benefits of the restructuring and transformation program underway over the last 18 months. It's a resounding tribute to the hard work and dedication of all MacMillan Bloedel employees."

"Analysts generally praised the deal as 'fairly reasonable' but 'not a steal.' One wondered if it would hit problems in Canada and MacBlo's home province of British Columbia, where government officials have taken a dim view of past efforts to put the company under foreign ownership.'This is the third or fourth attempted acquisition of MacMillan Bloedel in my experience: all previous ones have failed because of government involvement. Would they do the same thing? Hard to know,' said Robert Duncan of Research Capital."

B.C. Forestry Minister David Zirnhelt praised the deal 'as positive economic news' for the province, but said it will have to review the impact on forestry communities in deciding if it will transfer valuable cutting licenses to the new firm."

But former BC Premier Dave Barrett said the deal "was a terrible mistake... If we are going to maintain a Canadaian identity, core parts of our economy should be owned by Canadians, particularly in our resources industries. It's a job loss, a loss of canadian identity, and it makes Weyerhaeuser too big a player in our own forest industry."

MacBlo CEO emphasized Weyerhaeuser's professionalism: "MacMillan Bloedel's people will be joining one of the world's most highly respected companies that puts a priority on safety and is strongly committed to the environment," Stephens said. "Weyerhaeuser's long history in Canada, their commitment to the same business and community values that we prize most - and their aggressive growth - will serve our people, customers, communities and shareholders exceptionally well."

"This is an excellent strategic combination for Weyerhaeuser and its shareholders," said Steven R. Rogel, Weyerhaeuser chairman, president and chief executive officer. "We have been impressed by the action taken by MacMillan Bloedel's management to improve their operations and the positive way in which their employees have responded. We are acquiring modern and well-maintained manufacturing facilities throughout Canada and the United States that fit naturally with our operations, plus we add some of the highest quality timberlands in Canada and the Southern U.S. to our portfolio. These additions will have an immediate positive effect on our earnings."

Weyerhaeuser will account for the deal as "a pooling of interest," and expects to post yearly sales of about $13.3 billion after the buyout [up from 1998 revenues of $10.8 billion]. Weyerhaeuser expects to realize approximately US$150 million (CN$219 million) in annual benefits through savings in transportation and distribution, improving purchasing practices, increasing the balance in its manufacturing system and streamlining operations.

The merger is expected to close in the fourth quarter of 1999, if it receives necessary approvals from regulators and MacBlo shareholders, who will end up with about 15 percent of the combined company.