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Bill Virgin: Weyerhaeuser’s core keeps shrinking

Weyerhaeuser logs destined for China are loaded onto the visiting cargo ship Sun Ruby during August operations at the Port of Olympia's Marine Terminal.
Weyerhaeuser logs destined for China are loaded onto the visiting cargo ship Sun Ruby during August operations at the Port of Olympia's Marine Terminal. Staff file, 2015

Speaking of companies and industries in transition — which we were last week — along comes Weyerhaeuser with its $8.4 billion stock deal to acquire Plum Creek Timber.

Which means ... what exactly?

▪ To trot out an old ad slogan, this isn’t your grandfather’s Weyerhaeuser. It’s not even the last CEO’s Weyerhaeuser.

Every company of some duration goes through strategic and structural changes. Boeing is not the same company it was 20 years ago; going back that far would put you one year before the McDonnell Douglas combination. Ask the folks who were there back then if that deal had any noticeable effect. Microsoft is not the same company it was 20 years ago; that would put it in the same year as the launch of Windows 95 and the era of Microsoft’s world domination.

Weyerhaeuser has gone through its own shifts and shakeups in the intervening 20 years. In the 1990s the company divested itself of businesses deemed noncore. That was followed by two big deals, MacMillan-Bloedel and Willamette Industries, followed by yet another round of divestiture, the conversion to a real estate investment trust and plans for moving from its signature headquarters building in Federal Way.

The definition of what is core to Weyerhaeuser keeps getting narrowed. Containerboard, office papers, residential construction, all gone. At one time Weyerhaeuser made a big deal of its international timberlands; these days they get barely a mention. Nor is energy development much of a discussion topic.

You don’t need to leap 20 years ahead to feel safe in guessing that Weyerhaeuser will look considerably different — again — from what it does today. Yes, there’s the possibility that the company is, in 2035, still independent, still based in the Northwest, still in the lines of businesses it’s in. But judging from what the company has announced just this week, would you feel confident in making that prediction about what Weyerhaeuser is 10 years from now?

▪ What might change? In an “oh by the way” addendum to the Plum Creek announcement, Weyerhaeuser said it’s reviewing options for its cellulose fibers division. That’s the part of the company that produces pulp for products such as diapers; it also includes two major facilities in Longview, one that makes beverage packaging, the other a joint venture with Nippon Paper Industries to produce newsprint.

Just to emphasize the point of company change (and to note that it matters a lot who is running the company), the cellulose fibers business got a lot of emphasis under the previous CEO. Now it’s on the block. Yes, there’s the possibility Weyerhaeuser will decide to keep it rather than selling it or spinning it off, but you don’t make an announcement like that without a strong notion of what you’d like to do.

Timberlands is about as core as it gets for Weyerhaeuser, at least in terms attention and capital. It’s why the company shelled out more than $2.6 billion two years ago for Longview Timber. It’s why it’s doing the Plum Creek deal.

A longstanding piece of investing advice has been “buy land — they’re not making any more of it.” That goes double for timberland, and with harvests on public lands constricted the company is probably smart to accumulate as much of it as it can now.

But if timberlands is core and cellulose fibers is gone, what’s left is wood-products manufacturing (primarily lumber and oriented strand board). Plum Creek brings some manufacturing facilities in Montana into the deal, but that’s never been the point of the company. How much enthusiasm will Weyerhaeuser have in the future for its wood-products manufacturing business? Maybe the company will decide that having two core businesses works well — or it could decide to package its own manufacturing assets with those of Plum Creek and see if there might be a buyer for them.

▪ The prevailing business strategy these days is scale, as in “economies of.” Sure it’s nice to be flexible and nimble and to operate like a startup, but the real action is in size, the bigger the better. Get big through growth, get big through acquisition, or find someone who is trying to accomplish the same thing and might want to buy you.

As big as the Weyerhaeuser-Plum Creek sounds, it’s an afterthought to some of the proposed and pending consolidation deals out there: Walgreen and Rite Aid in retailing, for example, or Anheuser-Busch InBev and SABMiller in beer brewing.

This is not a return to the conglomerate era in which companies bought up all sorts of unrelated enterprises. As Weyerhaeuser illustrates, companies are pruning away branches they no longer consider vital or promising even as they bulk up in their core operations.

Expect that to last right up to the point the next CEO decides to undo what his or her predecessor did, in 20, 10, or five years — or maybe tomorrow.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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