Willamette Shows Some Interest

PORTLAND, OR—The art of letter writing is far from dead. Paper manufacturing giants Willamette and Weyerhaeuser are prime examples.

In the most recent round of sweet nothings exchanged between the would-be merger companies, Willamette Industries Chairman William Swindells and CEO Duane McDougall sent a letter in October to Steven R. Rogel, chairman, president and CEO of Federal Way, WA-based Weyerhaeuser Co., inviting his company to submit a written offer in the high $50s to spur merger talks.

"In view of our desire to put an end to the unproductive and costly stalemate for both our companies and shareholders, we write to offer you a way forward," the letter began.

"We continue to believe Weyerhaeuser's existing offer is woefully inadequate. . . .We have said all along that we would listen to serious offers. We believe that Willamette's current value is in the $60s and we are confident that continued pursuit of our strategic plan will substantially increase Willamette's value over time.

"To offer a path forward, if you make a written offer in the high $50s, we will agree to sit down for discussions regarding a possible combination of our two companies."

After further extolling the synergistic values to be had by Weyerhaeuser, the letter concluded with a deadline of 5 p.m. Tuesday, October 16, for Willamette to receive a written offer from Weyerhaeuser. Otherwise, Swindells and McDougall wrote, "We would urge Weyerhaeuser to withdraw its inadequate offer and cease the hostility attack on Willamette."

If the letter represented the extending of an olive branch by Swindells and McDougall, Rogel quickly swatted it out of their collective hand.

"Your letter...is simply another way for you to say no to discussions with Weyerhaeuser," Rogel responded. "We believe that our existing $50 per share offer is fair price for Willamette. Nevertheless, we have said that we are willing to increase our price if Willamette will engage in meaningful negotiations with us. We are not going to increase our price, however, merely to begin discussions that, based on your letter, would not be productive.

"We look forward to hearing from you when you come to a more realistic view as to a fair value for Willamette."

The following day Rogel penned another reply, refuting the degree of the synergistic claims by Swindells and McDougall. The October 16 deadline came and went, with no indication of anything more than prolonged rhetoric from both sides.

Weyerhaeuser then promptly extended its now-year-long hostile tender offer of $50 per share for Willamette. It was the seventh time in which the offer has been extended, with the most recent reoffering set to expire at midnight on December 5. Undoubtedly, Weyerhaeuser will ring in the new year by extending the offer for an eighth time should Willamette remain unfazed, which will likely be the case.

Weyerhaeuser's reluctance to bid against itself prior to a face-to-face meeting—despite the fact it is offering to pay more—represents a complementary gridlock to Willamette's refusal to sit down until it has an offer in the high $50s. The stall-ball tactics appear to be harming both sides.

Paul Latta, an analyst with McAdams Wright Ragen in Seattle, told the Seattle Post-Intelligencer that he was surprised at the "harshly worded letter" from Rogel, considering "what seems like a reasonably narrow price gap."

According to Weyerhaeuser, roughly 51.7 million, about 47 percent, of the 110 million outstanding Willamette shares were tendered in favor of the $5.5 billion deal. Some analysts believe the 47 percent figure is somewhat disappointing from the suitor's viewpoint.

"I'm a little surprised. It's marginally below where it should be," Don Roberts, an analyst for CIBC World Markets, told Reuters of the tender percent. "The short-term implication is it's taken some of the pressure off the Willamette board to negotiate."