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Willamette rejects bid
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May 9, 2001: 12:10 p.m. ET
Weyerhaeuser to focus strategy on Willamette's June 7 annual meeting
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NEW YORK (CNNfn) - Willamette Industries Inc. rejected rival Weyerhaeuser Co.'s sweetened $5.5 billion takeover bid Wednesday, as the two companies elevated their proxy battle.
In a letter to Weyerhaeuser's board, Willamette's (WLL: Research, Estimates) board declined to negotiate at "bargain-basement prices," claiming once again that it is not their strategy to sell the company. Willamette maintained that the $5.5 billion, or $50 a share, bid does not reflect the value of the "premier franchise in the forest products industry."
Willamette's board strongly recommended that its shareholders not tender their shares and withdraw any shares that they may have previously tendered.
Federal Way, Wash.-based Weyerhaeuser (WY: Research, Estimates) has been trying to buy Willamette, which makes paper products, since last year. Willamette previously turned down a $5.24 billion takeover bid from Weyerhaeuser.
Earlier this week, Weyerhaeuser raised its hostile takeover offer for Willamette by $2 to $50 a share. The new offer is set to expire May 18.
Weyerhaeuser expressed its disappointment Wednesday with Willamette's latest rejection and now plans to focus it strategy on Willamette's annual meeting June 7. Weyerhaeuser is attempting to get three candidates elected to Willamette's board.
"Willamette shareholders will be able to make their voice heard in a manner that cannot be ignored by the Willamette board of directors," Weyerhaeuser said. "We urge Willamette shareholders to consider that their management has never explained how or when it would deliver value superior to our premium offer on a stand-alone basis."
Wait until next year?
Weyerhaeuser first made its $5.24 billion bid for Portland, Ore.-based Willamette last November but has consistently been rebuffed. On April 12, Willamette reiterated its intent to remain independent, maintaining that it had not heard anything from Weyerhaeuser to prompt the start of friendly negotiations.
The raised bid, at $5.5 billion, represents a 44 percent premium to Willamette's trading price before the offer was made last November. The sweetened offer was considered one last attempt to get the company to negotiate.
"Weyerhaeuser put out a little bit of an olive branch and Willamette threw it back in their face," analyst Mark Wilde, of Deutsche Banc Alex. Brown Inc., said.
Weyerhaeuser has waged the takeover battle for the past seven months but some believe the struggle will last until next year. Weyerhaeuser will attempt to get three board seats in June and, even if successful, will not secure control of the company. So the company will have to wait until the next annual meeting in 2002 to get more seats, Wilde said.
There has been bad blood between the two companies for some time. Steven Rogel, currently Weyerhaeuser's chairman, was the first non-insider to be named CEO at Willamette in 1972. He left in 1997 to head rival Weyerhaeuser.
"This is like a Greek tragedy," Wilde said.
Willamette does not consider the $50 offer an accurate reflection of its value and probably is waiting for a $55 to $60 a share bid, he said. Willamette does not have any other offers on the table, analysts said, but knows that negotiating at $50 will not get it close to $55.
The paper industry still is ripe for consolidation. Weyerhaeuser should appear willing to walk away from the deal and consider other acquisitions, Wilde said. Probable targets include Packaging Corp. of America (PKG: up $0.02 to $14.00, Research, Estimates), Boise Cascade (BCC: down $0.18 to $34.65, Research, Estimates), and Temple-Inland (TIN: up $0.22 to $51.76, Research, Estimates)
Willamette's shares, which have gained nearly 40 percent since Weyerhaeuser announced its bid last November, most likely will drop if Weyerhaeuser walks away. "Let Willamette's board deal with the consequences," Wilde said. "This is a great time for Weyerhaeuser to be out looking for deals." 
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