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Impact of Weyerhaeuser merger will depend on proximity

Weyerhaeuser's planned merger with Plum Creek may affect small forestland owners depending on their proximity to the combined company's land and mills.
Mateusz Perkowski

Capital Press

Published on November 20, 2015 1:06PM

A looming merger between two major U.S. timber companies will affect Northwest forestland owners depending on their proximity to the combined behemoth’s assets, experts say.

Weyerhaeuser’s 6.9 million acres would be joined with Plum Creek’s 6.3 million acres under a recently proposed deal worth more than $8 billion that the two companies say will provide an “unparalleled scale in timberland ownership.”

“They now have a much bigger footprint,” said Brooks Mendell, president of Forisk Consulting, which studies timber industry finances.

In some areas, Weyerhaeuser’s new acres would represent a significant increase in its regional holdings, but in others, its expansion will be proportionately small, experts say.

For example, the 338,000 acres acquired in Oregon would boost its total amount of property in that state by more than 26 percent, while the 31,000 acquired in Washington would increase its holdings in that state by less than 3 percent.

The potential impact on landowners — in terms of the prices they would obtain for logs — is determined by the number of Weyerhaeuser acres and mills in their vicinity, Mendell said.

Those who find themselves surrounded by Weyerhaeuser forests and near its mills could be negatively affected because the company will likely prioritize processing its own logs rather than buying them on the open market, he said.

“It really depends where the acres are relative to a given landowner,” Mendell said.

Optimally, landowners profit most when they’re near several mills that compete for logs, he said. If several mills are owned by the same company, though, that reduces competition.

“Where you have fewer buyers from distinct companies, you have lower prices,” Mendell said.

The combination with Plum Creek would also give Weyerhaeuser the opportunity to buy more sawmills, he said.

As a real estate investment trust, or REIT, the company is able to forgo federal corporate taxes as long most profits are passed along to shareholders and non-timber assets represent less than 25 percent of the value of their total holdings.

Plum Creek’s manufacturing assets represent much less than 25 percent of its holdings, so by merging with that firm, Weyerhaeuser’s proportion of non-timber assets will fall, Mendell said.

“When you bring them together, Weyerhaeuser has more room,” he said.

A sawmill buying spree is speculative at this point, as the company would first fully integrate with Plum Creek and reduce overlapping costs, he said.

Forestlands owned by families are also insulated from some of the turmoil in the log market because they often have other income source and can avoid selling when prices are low, said Greg Frohn, Pacific Northwest regional manager for the Forest2Market timber industry consulting firm.

As a result, the trees are generally harvested on a longer rotation and are considered higher quality, he said.

“Those small landowners play an important role in the supply chain,” Frohn said. “You have a much larger diameter tree on average.”

Competing sawmills may also seek to build closer relationships with small landowners to ensure a steady supply of logs, Mendell said. “There could be a business opportunity there.”

It’s possible that Weyerhaeuser consolidating timberland will make Weyerhaeuser the dominant employer of loggers in some regions, reducing competition for their services, he said.

Some logging firms favored by Weyerhaeuser may displace others, but this “realignment” isn’t expected to put many loggers out of work, said Frohn.

Currently, the bigger worry for logging companies is finding enough young recruits to replace retiring workers, he said. “That’s more the challenge.”


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