Special Situation Investing

Wednesday, August 23, 2006

Weyerhaeuser (WY) to spinoff/split divisions to Domtar (DTC)

Forestry conglomerate Weyerhaeuser announced today that it is planning to spinoff or split-off it's fine paper division and merge the division with Domtar (DTC). A few points from the article cover pretty much all there is available right now:

The new company is expected to be the largest fine-paper company in North America.

...But as more and more documents -- such as legal rulings and financial reports -- have gone electronic, analyst Paul Latta with McAdams Wright Ragen said many have begun to think of it as a sector in decline.

...Weyerhaeuser shareholders will get a 55 percent stake in the new company and Weyerhaeuser will nominate a majority of its 13-member board

The companies said the deal is expected to generate about $200 million in annual "synergies" -- cost savings and extra revenue -- within the next two years, because the combined operation will be able to save money on things like transportation, logistics and purchasing.

Under the agreement, Weyerhaeuser will receive a $1.35 billion cash payment.

The deal has been approved by both companies' boards, and is expected to close early next year.

Another article has this to add:

Excluding overhead associated with the fine-paper business, Weyerhaeuser's operating earnings per share would have been $2.13 in the first quarter vs. the $1.78 actually reported, Rogel said.

This has the potential to be a good special situation. The stock will likely have a high debt load after the $1.35 billion special dividend, it is currently unprofitable and it is in a hated industry. Of course this is only appealing if it leads to large scale selling. It seems that the potential for economy of scale also exists. We will have to wait until more details emerge for a more conclusive analysis.


Post a Comment

<< Home