Pulp Friction at Weyerhaeuser

Rogel's hostile takeover of Willamette, its rival in forest products, has raised hackles

Things got ugly in a hurry for Steven R. Rogel, CEO of Weyerhaeuser Co. (WY ) In November, 2000, he sent a letter to William Swindells, chairman of Willamette Industries Inc. (WLL ), letting him know that Weyerhaeuser was making a run at his company. This was not the usual takeover attempt, however. Call it a homecoming of sorts: Rogel, 59, had been Swindells' protege at Willamette in Portland, Ore.--in fact, he had worked there for 25 years, running the place in the final two.

When Rogel left Willamette in 1997 to head up its much hated, far larger, and somewhat troubled rival, it was as if the favorite son had grown up, taken a job at the local bank, and then returned to repossess the family farm. Indeed, one reason Weyerhaeuser board members recruited Rogel was precisely because they believed he could mount a successful hostile takeover if necessary. Weyerhaeuser executives had never formally made an offer, but they knew Swindells was not likely to be receptive. He had flatly rejected friendly overtures from several other companies. So when Rogel's message arrived, Swindells, 71, had a few choice words for the courier: "You can take this letter back to Steve and tell him where to put it."

It was the first of many angry words in what became one of the most contentious buyouts in recent history. Ultimately, Rogel prevailed. But it took him another year to complete the acquisition of Willamette, and the price was steep--in more ways than one. He had to extend his buyout offer 12 times and paid a final price of $6.2 billion, $825 million more than he originally offered. And he endured a welter of personal attacks. Willamette executives, who considered him a traitor, taped a picture of him to a voodoo doll and jabbed pins into its face. Many of the nearly 15,000 Willamette employees sported "Just Say No Wey" buttons. And last summer, Rogel had to walk past Willamette workers picketing their company's annual meeting and carrying signs that read: "Rogue'l: You're looking for love in all the wrong faces."

Rogel knew what he was getting into with the folks at Willamette: The 85-year-old company had a reputation for fierce independence. That was what drew Rogel, a chemical engineer who grew up in a small wheat-farming town in eastern Washington, to Willamette in the first place. It was also a company that prided itself on the loyalty of its employees. When Rogel resigned as chief executive, Swindells insisted he leave the company that very day. The two haven't spoken since: Rogel clinched the deal in conversations with Willamette CEO Duane C. McDougall. "I knew [the hostile bid] would be upsetting to them and come back on me personally," Rogel says. What kept him going through those 12 months was his certainty about the benefits of the deal: "I slept well at night. I was doing the right thing not just for Weyerhaeuser but for good friends at Willamette," he says. "Nevertheless, you're human, and it impacts you."

Integrating Weyerhaeuser and Willamette will require considerable finesse. In addition to the usual challenges of merging two companies, Rogel has to overcome the hostilities of his new employees. And because he ended up paying a higher price for Willamette than he had first expected, Rogel has more debt on his balance sheet than he would like: $13 billion in total. In mid-February, Moody's lowered the new company's debt rating to medium-grade, Baa2 status.

But if he succeeds, Rogel will end up running a vastly more competitive company. The combination of Weyerhaeuser's financial heft and Willamette's efficient manufacturing will create a $19 billion forest-products powerhouse. It puts Weyerhaeuser first or second in a number of important markets, with its only real rival the $26.4 billion International Paper Co. Before the merger, Rogel had already gone a long way toward shaping up sleepy, bureaucratic Weyerhaeuser. He cut costs, boosted margins, and positioned the company as one of the dominant players in a consolidating industry. Weyerhaeuser posted profits of $354 million, on revenues of $14.5 billion, in 2001. But Willamette earned nearly as much last year--$248.8 million--on revenues of only $4.45 billion. It has the highest margins in the industry. In the weeks since the deal was finally announced, Weyerhaeuser's stock price has risen more than 10%.

Rogel figures the best thing he can do is to get through the integration quickly. So far, he has appointed two Willamette executives to senior positions in Weyerhaeuser's operations and has vowed that those laid off won't all be Willamette employees. He has set up toll-free phone numbers for merger-related questions and promised to post all relevant information on the company intranet. And he is leading forums with Willamette employees to articulate his vision for the new company. "Everyone has to know fairly and honestly what's going on," he says.

Back when he was rising to the top at Willamette, Rogel was respected for his nitty-gritty understanding of the business. Some employees are even welcoming him back. Bob Banister, a Willamette technical analyst who attended one of Rogel's meetings, says: "Steve came across very well and genuine." Putting the bitter fight aside won't be easy for everybody, though. Swindells, who resigned with the rest of the board on Feb. 11, declined to comment. And as one senior Willamette executive says: "Were this a friendly, amicable situation, it would probably be different. But it's not." Rogel may be picking voodoo pins out for some time.

By Stanley Holmes in Seattle

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