By MATEUSZ PERKOWSKI
The Weyerhaeuser Co. expects to significantly increase its footprint in the Northwest by taking over a competing landowner with 645,000 acres in the region.
The company has struck a deal to buy Longview Timber in a deal worth $2.65 billion, increasing its land holdings in Oregon and Washington by one-third, to 2.6 million acres.
"This is a one-of-a-kind acquisition. It is highly unlikely that the opportunity to purchase high value and high quality timberland of this magnitude in the Pacific Northwest will appear again," said Tom Gideon, the firm's executive vice president of timberlands, during a conference call.
Apart from being a major purchase for Weyerhaeuser, the transaction has the potential to increase timberland values for other landowners and investors in the region, said Brooks Mendell, president of Forisk Consulting, which tracks timber finances.
"They're making a big statement about their confidence in log values and timberland assets," he said. "It makes people more confident in timberland values."
While unlikely to affect log markets on a national scale, the consolidation could be a concern for sawmills in areas where Weyerhaeuser is the predominant landowner, Mendell said. Those companies would have fewer competing suppliers.
"It's a market by market issue," he said.
At more than $4,000 per acre, the price paid by Weyerhaeuser would be considered "on the upper end of transactions in the region," according to the Moody's credit rating agency.
Company executives said the price was justified because nearly 70 percent of the inventory on the land is harvest-ready timber on a flatter, more favorable terrain with a well-maintained road system.
The location is also desirable, particularly in light of the growing strength of California's housing market and the access to export markets in Japan and Asia, said Gideon.
"We will have more flexibility to meet this demand going forward," he said.
Mendell said the price paid by Weyerhaeuser is justified depending on how much of the timber ready for logging is high in the value chain.
"If it didn't have a lot of timber on it, it would be a lot" to pay per acre, he said.
Patricia Bedient, the firm's chief financial officer, noted that Northwest holdings will represent about 40 percent of Weyerhaeuser's total land assets after the transaction.
"This geography is the most valuable on a per-acre basis," she said.
Weyerhaeuser plans to raise about $2.45 billion to finance the transaction, half by taking on new debt and half by selling stock, Bedient said.
The company simultaneously announced that it would be evaluating the possible sale or spin-off of its real estate development division.
Weyerhaeuser may be evaluating that option partially for financial reasons, given the amount of debt it will be taking on, said Mendell.
"It's hard to keep everything," he said. "They're pulling several levers."
However, the company may also be recognizing that its main strengths are in forest management and research, so another company may be in a better position to maximize the value of the real estate division, he said.
"It's sort of a return to their roots," Mendell said.