[MCN] What changed in the 6-months since Weyerhaeuser bought Plum Creek?

Matthew Koehler mattykoehler at gmail.com
Thu Jun 30 17:06:12 EDT 2016

What changed in the 6-months since Weyerhaeuser bought Plum Creek?
By Matthew Koehler, WildWest Institute


The editor of the Flathead Beacon has a new column following up on
Weyerhaeuser’s announcement last week that they were shutting down two
mills and a large administrative office in Columbia Falls, Montana.

You can read: “What Changed? A lot happened between then, when Weyerhaeuser
spent $8.4 billion on Plum Creek, and now” here

It was interesting to see that in May Weyerhaeuser sold its pulp business
to International Paper for $2.2 billion. So too, it was interesting to see
that earlier this month Weyerhaeuser sold it’s liquid packaging unit to
(Japan-based) Nippon Paper for $285 million. I didn’t know about either of
those transactions.

The Flathead Beacon and most of the media coverage in Montana continues to
largely ignore another important piece of the puzzle here: something called
Real Estate Investment Trusts (REITs).

Ironically, Dave Skinner (sometimes a commenter on this blog) is also a
regular Flathead Beacon columnist and he wrote this piece
<http://flatheadbeacon.com/2015/12/02/the-new-forest-beasts/> for the
Flathead Beacon on REITs and the Weyco-Plum Creek merger back in December

As I recently pointed out, while Dave and I don’t agree on much, I do agree
with much of Skinner’s analysis of REITs, and specifically how it pertained
to the Weyerhaeuser-Plum Creek Deal.

Here are some important snips not to be missed in Dave’s article:

“That Weyerhaeuser and Plum Creek are merging might have surprised some
Montanans. Not me. Why not? Well, I guess it’s time to remind everyone
America’s timber beasts are dead, replaced by a new kind of beast – Real
Estate Investment Trusts (REITs)….

REIT’s must pay 90 percent of untaxed annual profit to shareholders, who
are then taxed 15 percent on their capital gain. All things being equal, a
dollar in a REIT pays back 35 percent more to an investor than a dollar in
an otherwise-identical integrated company. In the Wall Street universe,
where billions chase hundredths of a point, that was a big fat hairy deal….

Significantly, America’s all-time greatest integrated timber barony,
Weyerhaeuser (Weyco for short), held out the longest … in fact, lobbying
Congress for tax treatment that would render the company equivalent to a
REIT in terms of tax burden and shareholder return. For that effort, in
2008 Weyco scored a reduction in income tax to 17 percent, saving $182

Nonetheless, with REITs paying zero – Weyco kept spinning off mills (and
people) in order to get under the REIT manufacturing-asset threshold,
converting to REIT in 2010….

REITs aren’t focused on timber, except as a means of generating what
stockholders crave – cash.”

Regarding the notion from the Flathad Beacon editor that in 2013 “there was
a level of optimism in the [timber] industry” and “housing starts were
up”….I’m not sure that’s true.

Well, housing starts may have slowly inched in a slightly upward direction
by 2013, but as this chart from the U.S. Census Bureau clearly illustrates,
U.S. housing starts are still just a fraction of what they once were.

[image: U.S. Housing Starts]
rough estimate is that during the period 2000-2006 the U.S. had about 12.45
million housing starts. During the same time frame, but from 2009 to 2015,
the U.S. had about 5.95 million housing starts.

That means that *the U.S. had a whopping 4.7 MILLION LESS housing starts
from 2009-2015, compared with pre-housing bubble burst period of 2000-2006.*

Please, let that number sink in for a second. That’s a lot less demand for
2-x4’s, plywood and building materials.

Also, in 2013 the U.S. timber industry knew full well what was coming down
the pipe – the October 2015 expiration of the U.S.-Canada Softwood Lumber
Deal. Of course, I can’t recall one single timber mill owner, logging
lobbyist or politician telling Montana citizens about this. Nope, they were
too busy telling the public how a handful of pesky “environmental
extremists” were the reason for the timber industry’s problems. In fact,
the public was basically keep about the expiration of the deal until the
weeks leading up to it.

The Beacon did run this article
September 2015, in which the Montana timber industry finally starts to come
to grips with the expiration of the Softwood Lumber Deal with Canada, and
also the weak Canadian dollar, which was making the U.S. market much more
attractive to Canadian timber corporations.

In fact, in that September 2015 article, Todd Morgan of the very-much
pro-industry Bureau of Business and Economic Research at the University of
Montana said the economic aftershock will continue to weaken the industry
for some time.

“I wouldn’t be surprised to see mills taking some down time, either by
shortening shifts or through curtailments,” Morgan said.

Well, that’s exactly what happened. At the end of September 2015 the Beacon
“Executives at Tricon Timber announced that roughly half of the mill’s
workforce was being laid off Sept. 25, citing the tumultuous American
timber market.”

Tricon’s VP said “said low lumber prices, the declining Chinese market and
the looming expiration of the softwood lumber agreement between the U.S.
and Canada all played key parts in the company’s decision.”

Even Julia Altemus, with the Montana Wood Products Association, who never
misses a chance to blame environmentalists, admitted in the article:

“The state’s entire industry is struggling amid this situation. She said
the industry has laid off a total of 235 positions since March. ‘People are
just trying to do more with less,’ Altemus said. ‘It’s a matter of

Also in September 2015, Julia Altemus told Montana Public Radio this:

“If you go back to March 1, about 235 lumber or mill workers have been laid
off. That’s a huge hit to the industry and all the mills are suffering
about a $2 million to $3 million loss in the first 6-months of the year.
[It’s not] been that bad since the first part of the great recession back
in 2007/2008….the markets are terrible.”

So just like the Flathead Beacon’s editor asks in his column “What
Changed?” I must ask the same exact thing. *What DID change from the dire
situation outlined above* – the results of which were entirely of the
result of global economic realities and “terrible” markets.

Well, what changed in one of the largest wood products companies in the
entire world came into Montana and purchased Plum Creek Timber Co for over
$8 billion, making Weyerhaeuser a $25 billion new kid on the block.
Weyerhaeuser’s purchased came with those 880,000 acres of (largely
cut-over, entirely unsustainably logged) Plum Creek private timber lands
and Weyco jumped whole hog into the REIT shell game that Skinner described
so well.

What else changed? Well, we’re in the middle of a heated election cycle so
of course all the politicians had to blame someone. So both republicans and
democrats seized the opportunity to blame Weyco’s closures of two mills and
an administrative office on “activists,” “fringe environmentalists” and the
federal government.

I’ve said it before, so might as well say it again. If we’re going to
continue to let politicians and big business incorrectly identify the
problems, and just blame all the world’s problems on ‘fringe
environmentalists,’ how in the world will we have good solutions? Or
sustainable communities? Or science-based management of our National
Forests, including budgets needed to do all the backlogged bona-fide
restoration work?

Maybe that will change too…but I’m not counting on it.
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