Aiming to strengthen its shareholders’ value, forest product manufacturer and supplier Weyerhaeuser Company WY recently inked a merger agreement with its rival Plum Creek Timber Co. Inc. PCL. In addition, the company will soon evaluate strategic alternatives for its Cellulose Fibers business.
As revealed, the merger, approved by the board of directors of both Weyerhaeuser and Plum Creek, will lead to the formation of a premier global timber, land and forest products Real Estate Investment Trust (“REIT”). Apart from customary closing conditions, the involved parties await green signals from their respective shareholders too.
As per terms of the agreement, Weyerhaeuser will be issuing 1.60 common shares for every Plum Creek share. The exchange value represents an implied premium of 13.8% to the 30-trading-day Volume Weighted Average Price ratio of Plum Creek shares to Weyerhaeuser shares. Upon completion of the transaction, Weyerhaeuser will repurchase shares worth $2.5 billion, bringing the mode of payment to 70% in stock and 30% in cash.
Weyerhaeuser and Plum Creek hope to receive the necessary approvals and close the merger by late first-quarter or early second-quarter 2016. Once completed, shareholders of Weyerhaeuser will own roughly 65% of the combined entity, while the remaining 35% will be held by Plum Creek shareholders. The new REIT, which will retain Weyerhaeuser’s name and trading symbol, will have a dividend rate of $1.24 per share. Headquarters of the new-found entity will be based at Seattle by mid-2016.
The merger will likely be a win-win move for both Weyerhaeuser and Plum Creek. For Weyerhaeuser, the consolidation will enable it to leverage the improving housing market in the U.S. as well as develop and offer better products and services to its customers. The company will adopt an improved capital allocation policy, reflecting a stronger cash position and solid balance sheet. In addition, it expects to realize $100 million of cost synergies annually, while predicting positive impact on per share funds available for distribution in the maiden year of the merger.
Apart from this, Weyerhaeuser announced that it has received a go-ahead from its board of directors for the evaluation of strategic alternatives for its Cellulose Fibers business. Among several options, the company is open to either spinning off this business or continuing with it. The Cellulose Fibers business includes five pulp mills, two modified fiber mills, one liquid packaging board facility, and one publishing papers joint venture facility.
Weyerhaeuser, with a market capitalization of $15.5 billion, currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Universal Forest Products Inc. UFPI and Comfort Systems USA Inc. FIX. While Universal Forest Products sports a Zacks Rank #1 (Strong Buy), Comfort Systems holds a Zacks Rank #2 (Buy).
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