(LONG) Willamette's 'yes' shocks Wall Street

Daniel B. Wheeler dwheeler at ipns.com
Wed Jan 30 23:00:06 EST 2002

>From Portland (OR) Tribune, Jan. 25, 2002, p A1

Willamette's 'yes' shocks Wall Street
The company's investment banker may have played a role
	Willamette Industries INc.'s capitulation to Weyerhaeuser Co.'s
takeover bid this week after 14 months of feisty resistance came with
such startling suddenness that it has raised questions both inside the
company and on Wall Street as to how it happened.
	By agreeing "in principle" Monday to sell to Weyerhaeuser for $55.50
per share, or $6.1 billion, Portland's last Fortune 500 company began
the final chapter in a saga that began 96 years ago in Dallas, Ore.
	In the end, after putting up a defense against Weyerhaeuser that was
so stubborn it both astonished and infuriated Wall Street, an on-going
shakeout in the forest products industry of global dimensions proved
too powerful for Willamette.
	But, if persistent rumors circulating in the industry are accurate,
the end may have been hastened by Willamette's investment banker.
	The final act in the drama that began to play like a soap opera may
have been scripted in New York City by Goldman Sachs, the investment
banking firm that has represented Willamette in its battle with
	Willamette capitulated, these reports suggest, when Goldman "jumped
ship" during 11th-hour negotiations the Portland company was having
with Georgia-Pacific about hte purchase of G-P's building products
division. The acquisition would have more than doubled Willamette's
sales and might have kept it independent.
	"They were ready to sign the papers," an industry source said
privately. "They had all but signed on the dotted line - due diligence
was done, the documents were ready. And then Willamette's investment
banked yanked the deal."
	Goldman Sachs declined to comment.
	Jackie Lang, spokeswoman for Willamette and CHairman William
Swindells, said no one factor accounted for the company's decision to
accept the Weyerhaeuser offer.
	"It was a long, complicated list of factors - and the landscape
changed in the last few days," she said.
	But Willamette's sudden turn-around shocked Wall Street analysts and
instutional investors. They were opposed to the G-P deal because of
concerns about its exposure to asbestos liability claims related to a
line of gypsum products it once produced - but were adjusting to the
idea that Willamette was serious about the acquisition.
	Steve Chercover, an analyst with D.A. Davison & Co. in Portland,
said: "I was taken completely off guard by Monday's announcement. It
was a shocker. We thought the G-P deal was very, ver close, like they
were literally at the altar and someone put up their hand and said, 'I
	"I was just amazed," said Mark Wilde, an analyst with Deutsche Banc
Alex Brown. "I thought they were close to a move with G-P. We're all
struggling with what the hell it was" that caused the turn-around.
	The Willamette board's Jan. 3 rejection of Weyerhaeuser's $55
per-share offer was "pretty forceful," Wilde said. "But now they've
accepted. There's another 50 cents in there as a little face-saver,
but they've turned around and taken the offer."

'Gloomy faces'
	The suddenness also shocked Willamette's employees, suppliers and
contractors. One outside contractor was in a room full of Willamette
executives at the company's headquarters in the Wells Fargo building
Monday afternoon when they first heard the news.
	"Man, there were a lot of glommy faces in that room." Many, he said,
had pinned their hopes on the Georgia-Pacific negotiations.
	"Goldman would never imply that there was ever any difference of
opinion with their client," said one veteran money manager familiar
with the firm. "If they thought Swindells was off the reservation and
was prepared to d a damaging transaction, and they would not give
their blessing, that could have had a lot of impact."
	Weyerhaeuser made clear last month that if any deal with G-P were
consummated, it would terminate its buyout bid. Willamette, in
announcing its acceptance of a Weyerhaeuser deal, also disclosed that
its negotiations with G-P had ended.
	While Willamette presumably woul dhave been free t hire another
investment banker to complete the G-P deal, the odds against it were
	Weyerhaeuser's tender offer of $55 per share earlier this month - the
latest in a series of offers initiated in November 2000 starting at
$48 - drew acceptance from 64 percent of Willamette's shareholders,
the highest tally recorded up to that point in the protracted battle.
	Lawsuits and threats of lawsuits over its resistance to the
Weyerhaeuser takeover were multiplying. The united front among
descendants of Willamette's founding families had begun to fray.
	The nation's biggest investment fund, the California Public Employees
Retirement System, which owned 482,700 shares of Willamette sotck,
publicly urged Swindells last week to abandon the G-P negotiations.
	And a proxy fight loomed later this year that probably would have
given Weyerhaeuser loyalists control of Willamette's board.

Time to consolidate
	The marriage of the two Northwest rivals promises to produce a
formidable competitor and firmly ensconce Weyerhaeuser as one of North
America's Big Three forest products companies.
	The new combination, said Dale Annis, vice president and portfolio
manager for Wells Fargo private client services in Portland, would be
the virtual equal of International paper and Georgia-Pacific, the
other two major palyers in the industry.
	The apparent logic of the Weyerhaeuser-Willamette combination held
Wall Street in thrall from the start because it has been seen as a
desired step toward consolidation of a highly fragmented industry.
	The industry reached maturity about 20 years ago, says Jon Anderson,
publisher of Random Lengths in Eugene, a respected trade publication.
	"With that maturity," he said, "I think consolidation is the next
natural step, but it ramins an industry that has very healthy,
thriving businesses that are single-mill operations."
	Steven Rogel, the Weyerhaeuser chairman and chief executive officer,
asserted in an interview with the Tribune last year that the entire
North American forest products industry represented at that point less
than a half of 1 percent of the total equity value of the Standard &
Poor's 500 - and less than the market value of just one company,
General Electric.
	"When you're fragmented and tiny, you've got a real problem," he
	But the pace of consolidation in the industry, he added, has
quickened dramatically in the last five years.
	"The industry is rapidly coalescing into North America's Big Three,
Europe's Big Two, and Asia is consolidating down to two big guys.
Across the glove, there are going to be no more than seven to 10
really big players. It would be extremely hard for anyone to grow into
that size out of what's left in the business."

One piece at a time
	"Willamette's strategy for growth," Rogel said in the interview, "was
building a piece at a time. It's tough given the size they are to get
the scale in that manner."
	The five biggest companies in the forest products industry, Rogel
said, command less than a 30 percent share of global markets. In
comparison, the top five automakers globally have 80 percent of the
	The flip side of consolidation is the loss of jobs.
	"Now the economy has slowed down, and we're in the process of a kind
of shakeout, said Random Lengths' Anderson. "We have too much
capacity, and we need to have some people fall by the wayside. In that
process, you have takeovers like this.

Posted as a courtesy by
Daniel B. Wheeler

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