Longview Fibre Co. to change corporate structure

Aug 01, 2005. /Lesprom Network/. Longview Fibre Co. announced it plans to change its corporate structure by next year, a move that could boost the price of its stock but threaten its struggling pulp mill. The company said in a press-release that it will change its ownership structure to become a real estate investment trust (REIT), a structure with tax advantages over its current corporate form. As a REIT, analysts say, the company is likely to be valued more highly by the stock market, but some observers say it could also separate ownership of the company's poorly performing pulp mill and its highly profitable timberlands. "Historically the mill has eaten up everything the timber asset has made," said Paul Latta, timber industry analyst with McAdams Wright Ragan brokerage in Seattle. Under a REIT, its conceivable that timber would no longer subsidize the company's pulp mills and converting plants. One Fibre investor with 8,500 shares, Tom Anderson of Longview, said the Longview mill could end up shedding 300 to 500 jobs and operate more profitably. Rick Wollenberg, Fibre's President, Chief Executive Officer and Chairman, did not return calls after the company's announcement, but the company scheduled a conference call with industry analysts to discuss it. The change to a REIT will increase the company's value and enable it to pay a much larger dividend to stockholders, he said in the press-release. In Wollenberg's statement, he said the company remained committed to the pulp mill, but he didn't explain how it would fit into the REIT structure. "This structure does not change our commitment to operate each of the company's three core businesses --- timber, paper and paperboard, and converted products," he said. Of those three businesses, only timber has been consistently profitable, however. "Converting to a REIT ownership should unlock value for our shareholders," Mr. Wollenberg added. "Unlocking shareholder value" is the financial industry's terminology for convincing the stock market that a company's shares are worth more than the price at which they're currently valued. Fibre officials have long said they think the company's 585,000 acres of timberlands are worth far more than the value placed on them by the stock market. The best way to unlock shareholder value is to stop using timber profits to support an unprofitable mill, Mr. Latta and other observers say. Wollenberg's press release said the company's 15 converting plants in 12 states, the Longview pulp mill and its lumber mill in Leavenworth, Washington, will be transferred into a wholly owned subsidiary within the REIT. Company officials were unavailable to further explain how that would work. Wall Street has long pressured the company to operate more profitably. In the late 1980s the Bass brothers, owners of a Texas investment firm, began buying Fibre stock and the company erected defenses to prevent a takeover. Mr. Latta said the rest of the market sees the same value in Fibre as the Bass brothers did 15 years ago. "Their view was you'd realize shareholder value by getting rid of the mill because it was basically being propped up by the timber," he said. "There's no question that investors are certainly looking at it that way." Wollenberg said the conversion to a REIT would have other benefits besides raising the stock price. "We also expect our REIT structure to improve the company's access to equity markets, enhance our flexibility to pursue strategic opportunities and drive shareholder value," he said. Steve Chercover, an industry analyst for brokerage D. A. Davidson in Portland called the move "awesome." Changing to a REIT, he said, would value the company based on its profitable timberlands instead of its mill and converting plants. "I believe the timberland is the crown jewel of Longview Fibre," he said last year. Longview investor Tom Anderson, a Fibre retiree, praised the move as well. He said he didn't think the REIT structure would mean the mill would close, but likely would mean it had to operate more efficiently, probably with hundreds fewer workers. "It's really important to the community that they have a viable, healthy industry there, maybe with 300 or 500 less employees," said Mr. Anderson, who reports owning 8,500 shares of Fibre and is a retired Fibre worker. Two-thirds of Fibre's 3,200 employees are based in Longview, including 1,200 union members at the Longview mill. Those numbers are as of the Fibre 2004 annual report. Anderson last year advanced a shareholder proposal to divide Fibre into three companies, but was able to provide few details on how that would work and other shareholders dismissed it quickly at the recommendation of Fibre's board of directors. Debbie Marshall, President of Association of Western Pulp and Paper Workers Local 153 at Longview Fibre, said she knew Fibre was considering the change, but didn't have any comment yet. "I don't know what this means," she said. Mr. Latta said Fibre has in the past been not paid enough attention to rewarding the company's shareholders. "The company has been set up for employee benefit for quite some time, though investors have not benefitted," he said. Fibre's press-release said the company intended to boost its dividend, which has been at several cents a share in recent years, to $1 a share. Wollenberg was unavailable to explain how the company would fund that dividend and make capital investment in its manufacturing operations at the same time. Longview Fibre is a major manufacturer of value-added corrugated and solid-fiber containers, and other paper products. The company operates one of the largest pulp-paper mills in the world at Longview, Washington, 15 converting plants in 12 states, a lumber plant. It is a leader in recycled-content paper packaging and owns approximately 585,000 acres of timberlands managed for Sustainable Forestry in the Pacific Northwest.