Temple-Inland Bows to Icahn

The Texas paper products maker yields to Icahn's wishes on splitting itself up, and its stock jumps nearly 13%

After years of pushing for the break-up of Temple-Inland Inc. (TIN), shareholder activist Carl C. Icahn appears to have finally gotten his wish. The forest-products company said Feb. 26 that it plans to split into three public companies and sell its timberlands by year-end.

The company had long resisted the idea. In March 2000, LENS Investment Management had filed a statement with the Securities and Exchange Commission, arguing that Temple-Inland should spin-off its banking and financial services division in order to improve its transparency and accountability. Then in February, 2005, Icahn, holding a 2% stake in the Austin (Tex.)-based company, threatened to nominate candidates for the company's board but to no avail. Icahn later increased his stake to 6.7% and once again threatened, on Feb. 16, 2007, to fight for more control.

In a press release 10 days after Icahn's latest salvo, Temple-Inland CEO Kenneth M. Jastrow highlighted the company's 107% total return for shareholders over the past five years, compared with 39% for the S&P 500 and a negative 5% for the peer group median. His company has also returned $710 million to shareholders over the past two years through share buybacks and dividends.

But Jastrow is willing now to spin-off his company's financial services and real estate operations while keeping its manufacturing operations, which include packaging and building products. "Each of the three public companies - manufacturing, financial services and real estate - will be well positioned in the marketplace, have an appropriate capital structure and will benefit from greater strategic focus," Jastrow said in the release.

The units to be divested accounted for 24% of Temple-Inland's sales and one-third of its operating income last year, according to Standard & Poor's Corp. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.) S&P analyst Stuart Benway raised his 12-month target price on the stock to $66 from $55, citing the spin-off announcement.

The company's decision sents its shares soaring 12.9% to settle at $62.01, a new 52-week high, on the New York Stock Exchange.

In a statement, Icahn announced that he was "pleased," and told Jastrow in a letter that he would not appear at Temple-Inland's 2007 annual shareholders meeting, ending the threat of a proxy battle for board control. "This is a great example of the 'win-win' outcomes that can be achieved when managements work together with shareholders to create value for all," Icahn crowed in a press release. "We look forward to continuing our dialogue with management."

Hopefully CEO Jastrow feels the same way. "Going forward, Temple-Inland will be a focused, leading manufacturing company positioned to continue to drive return on investment," he said in the press release. "We are confident the new Temple-Inland is well positioned for the future."

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