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Plum Creek Timber grows
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July 18, 2000: 6:43 p.m. ET
Wood producer buys Georgia-Pacific unit for $3B; doubles timber holdings
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NEW YORK (CNNfn) - Wood harvester Plum Creek Timber agreed to acquire Georgia-Pacific Co.'s timber business in an all-stock transaction worth just more than $3 billion Tuesday, creating one of the world's largest and most diverse pure timber producers.
Plum Creek's acquisition of The Timber Co. (TGP: Research, Estimates), a separate operating group of Georgia-Pacific, will create the No. 2 private timberland owner in the United States with more than 7.9 million acres in 19 states -- more than double its current holdings.
The deal completes a rapid and dramatic overhaul of Georgia-Pacific, leaving it focused almost exclusively on its paper products.
On Monday, the Atlanta-based company wrapped up a deal to purchase rival Fort James for about $11 billion in cash, stock and debt, marrying the maker of Quilted Northern tissue and Brawny paper towel brands with the producer of Angel Soft tissue and Sparkle paper towel brands.
"This fits with our strategy announced yesterday of moving more toward the higher-end value products," said Greg Guest, a Georgia-Pacific spokesman said of the deal. "Long-term strategy was always to separate the manufacturing and the timber and to free up the value that was locked when it was integrated. This takes it another step further."
 As part of the merger agreement, Georgia-Pacific (GP: Research, Estimates) entered a 10-year pact to purchase wood fiber from Plum Creek.
Georgia-Pacific currently purchases roughly 80 percent of its timber products from vendors beside The Timber Co., Guest said. Plum Creek estimates that the company will purchase about 50 percent of the timber harvested on former Timber Co. land.
Still, the agreement "assures Georgia-Pacific will continue to have access to fiber and we will continue to have a quality customer," said Rick Holley, Plum Creek president and chief executive officer.
Terms of the deal call for Timber Co. shareholders to receive 1.37 shares of Plum Creek (PCL: Research, Estimates) stock for each of their shares. Based on Plum Creek's closing price of 27-3/16 Tuesday, the deal values Timber Co. shares at $37.25 per share, a 50 percent premium above the company's closing price Tuesday.
Plum Creek will also assume roughly $1 billion in Timber Co. debt, although that total will be reduced by roughly $350 million once a California timber parcel is sold. The companies hope to close the transaction by the first quarter of next year, contingent on a ruling from the U.S. Internal Revenue Service that the transaction is tax free to both companies.
Holley said the deal would immediately add to his company's earnings and cash flow "in the double-digit range." He also said the company would wring $15 million in cost savings from the deal, although he admitted that figure was "conservative."
The combined company will boast annual sales of about $1.3 billion.
Stocks ride merger wave
On the New York Stock Exchange Tuesday, Plum Creek shares shed 3/16 to close at 27-3/16, while Timber Co. shares gained 1/2 to 24-3/4. Georgia Pacific shares closed down 29/32 at 25-3/16.
Plum Creek shares plummeted to three-year lows earlier this year, but have rebounded of late as merger speculation heated up in the industry. Holley said Tuesday he still believed the company's shares were "undervalued," and said the board would continue to take appropriate steps to address that through stock repurchases or other means.
The Timber Co.'s stock, meanwhile, largely has traded in a narrow range since Georgia-Pacific split its operations into two public companies in December 1997. Holley said the deal's purchase price equated to roughly $800 per acre of timber, about $200 below what they considered to be the going market value.
The deal is but the latest in a rapidly consolidating industry. The merger craze that was sparked by market leader International Paper's (IP: Research, Estimates) agreement in May to buy Champion International (CHA: Research, Estimates) for about $7.3 billion, wresting that company from a deal with Finland's UPM-Kymmene. 
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