Commentary: It's Time for Willamette to Give in to Weyerhaeuser

It has been emotional, nasty, and seemingly endless. Indeed, the fierce hostile-takeover battle that began way back in November, 2000, between two Northwest timber rivals, Weyerhaeuser Co. (WY ) and Willamette Industries Inc. (WLL ), could drag on for several more months. Despite repeated Willamette board meetings to consider Weyerhaeuser's sweetened $55-a-share bid, Willamette shows few signs of yielding.

Too bad, because a Weyerhaeuser-Willamette combo makes good strategic sense. The industry is in the midst of a broad consolidation to reduce excess capacity, of which Willamette has plenty. A successful Weyerhaeuser bid would also give Willamette investors a tidy premium of 40% over its $33 share price prior to Weyerhaeuser's original bid. Further, it would preclude any more ill-considered moves on the part of Willamette's management.

Investors clearly want a deal. In October, a majority of shareholders backed a tender offer at $50. Yet in his damn-the-torpedoes attempt to outrun the Weyerhaeuser offer, Willamette Chairman William Swindells has been maneuvering to acquire the building products division of Georgia-Pacific Corp., another forest products company with serious problems. The $3.5 billion offer announced in December, Swindells has argued, is the only way to make Weyerhaeuser and its CEO, Steven R. Rogel, go away.

But acquiring the GP unit would create more difficulties than it would solve. A GP deal would give Willamette a gypsum wallboard business that carries big potential asbestos liabilities and a costly distribution system vastly different from Willamette's own. That would be a sorry result for a Willamette management team that up until now has had one of the best-run operations in the industry.

The problem with this fight is that it has been far too personal from the start. The two rival chieftains go way back: Weyerhaeuser's Rogel once held the same post at Willamette, where, as a 20-year veteran, he was Swindells' protege. Not long into the takeover battle, incensed Willamette execs taped a picture of Rogel to a voodoo doll, placed it on a desk in the hallway that ran through the Portland (Ore.) executive suites, and jabbed pins into their former boss. Says Willamette CEO Duane C. McDougall: "It was a pretty good indication of how people were feeling."

Swindells has vowed he will never sell to Rogel. The Willamette board has used every means to try to scotch the deal, including plumping up golden parachutes, withholding shareholder mailing lists from Weyerhaeuser, and threatening to trigger a hugely dilutive poison pill.

Yet all that pales compared with Willamette's plans to buy GP. With GP's myriad problems, many investors see the potential deal as a "scorched-earth" tactic to thwart Weyerhaeuser. Even members of the founding family, who have supported Willamette until now, are against it. "Those types of companies at GP are not the core business of Willamette," says Richard M. Clark, a son of one of the company's founders, who controls about 3% of its shares. He is now willing to sell for $55 a share.

One way or the other, a decision will have to come by June, when a proxy vote over board membership is set. Last year, Weyerhaeuser won three seats on a nine-member board after waging a heated proxy battle. Unless Swindells goes ahead with the GP bid--in which case Weyerhaeuser will withdraw its offer--it looks like Weyerhaeuser will win three more seats and board control in June. Ultimately, Swindells may win this battle--but at a heavy cost to the company and its shareholders. It's time he gave up the fight.

By Stanley Holmes

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