Paper War Catching Fire
FEDERAL WAY, WA—The high-octane, acrimonious hostile takeover attempt of paper giant Willamette by fellow industry heavy Weyerhaeuser appears far from over.
The battle lines were drawn June 7, when Willamette shareholders appeared to have voted in the Weyerhaeuser slate of three to its board of directors; official results weren't expected for a few weeks, as of press time.
With their slate in place, Weyerhaeuser vows to nominate another slate of directors for election at the 2002 annual meeting should Portland, OR-based Willamette refuse to negotiate, as has been Weyerhaeuser's contention. Willamette counters that the current offer on the table of $50 per share is not even "in the ballpark."
The two sides engaged in a propaganda letter writing campaign leading up to the June 7 board meeting:
* On May 9, Willamette informed Weyerhaeuser that its board of directors had unanimously rejected its amended offer of $50 per share, writing, "Put simply, we have concluded that your latest offer does not come close to accurately reflecting the significant value inherent in what we believe is the premier franchise in the forest products industry."
In outlining several points to back the rejection, Willamette called the offer's 4 percent increase from $48 as being "paltry."
A protracted battle may do harm to Willamette's value, some shareholders fear. "These guys (Willamette's board) have surprised even us," Steven Cohen, chief investment officer at Keller, DiLeo & Co. and a Willamette shareholder, told Reuters. "They haven't taken any steps to do something that is even remotely in favor of their shareholders."
* On May 21, Weyerhaeuser said it would consider upping the ante to flush out Willamette to the negotiating table. "If Willamette is prepared to negotiate a definitive merger agreement promptly, Weyerhaeuser is willing to increase its offer to above $50 a share," Steven Rogel, Weyerhaeuser chairman and CEO, said in a statement.
* Weyerhaeuser gained momentum when two of the leading proxy advisor firms, Proxy Monitor and Institutional Shareholder Services (ISS), recommended that Willamette shareholders vote for the Weyerhaeuser nominees. "One has to wonder whether the Willamette board would accept ANY offer from Weyerhaeuser, or any other suitor for that matter," Proxy Monitor said in its May 24 report.
The report also alluded to Willamette's agreement with its financial advisor, Goldman Sachs & Co. Weyerhaeuser, in a letter to Willamette shareholders dated May 25, said, "Ask yourself why Willamette is paying Goldman Sachs $30 million of your money to prevent a deal with Weyerhaeuser."
The companies exchanged letters to their respective boards. Weyerhaeuser wrote, "Despite the fact that the Willamette board appears to believe that Willamette is worth more than its shares have ever achieved in the market, they have never disclosed at what price, if any, they would consider a sale transaction."
In response, Willamette's Duane C. McDougall, CEO, and William Swindells, chairman, raised the following points: "We believe Weyerhaeuser's current offer would be at least 30 percent accretive to Weyerhaeuser's cash earnings on a conservative basis—value that, in our view, rightfully belongs to Willamette shareholders; while stock prices for the relevant Industry Composite of comparable companies are up 29 percent and Weyerhaeuser is up 34 percent since November, all you have shown our shareholders is a 4 percent increase to an offer which we made abundantly clear we believed was not even 'in the ballpark' ... we believe Willamette could be trading above $50 today in the absence of your hostile offer."
McDougall then issued a statement critical of Proxy Monitor's findings. "Proxy Monitor appears to have absorbed Weyerhaeuser's rhetoric, but ignores the hard economic facts behind our board's carefully considered actions. Our board has never believed that Weyerhaeuser is willing to pay what we believe is a fair value for Willamette. While saying publicly that they want to do a deal quickly and hinting that they may offer more, they tell us privately that nothing has changed and they have nothing new to say. That's why we have not been willing to sit down with them."
A Wall Street Journal report indicated that Willamette didn't want to sit down with Weyerhaeuser in the same building. According to the Journal, Willamette booked the main ballroom at the Portland Art Museum for the annual meeting, leaving the museum's five other rooms open. Weyerhaeuser stealthily booked the remaining rooms under the name of Ed Grosswiler, a local consultant, for $6,000.
While it is commonplace for takeover targets to find the aggressors setting up shop in the same building during an annual meeting, Weyerhaeuser made a calculated mistake. Among the museum's benefactors are William Swindells and his wife, Ann, who have donated somewhere between $500,000 and $749,000. When Grosswiler revealed the name of his client to the museum two weeks after booking the rooms, the museum quickly refunded Weyerhaeuser's money.