NEW YORK – Willamette Industries Inc. on Friday rejected a sweetened $6 billion acquisition offer from rival Weyerhaeuser Co., potentially setting the stage for a second bitter shareholder battle for control of Willamette's board.
Weyerhaeuser responded to the rejection by vowing to launch a shareholder proxy fight to gain three additional seats on Willamette's nine-member board. Combined with the three seats it won at the company's annual meeting last year, a second victory would effectively give the timber company control of Willamette's operations.
But Willamette's resolve to continue negotiating to buy Georgia-Pacific Corp.'s massive building products unit could effectively scuttle those plans. Weyerhaeuser has said previously it would drop its $55-per-share hostile takeover bid if Willamette strikes a deal for that unit.
Willamette's rejection initially sent the company's shares tumbling as much as 12.3 percent on investor fears that a deal with Weyerhaeuser was now unlikely, bringing a 15-month-long hostile takeover effort to a halt.
However, Willamette shares rebounded somewhat on word that Weyerhaeuser was not dropping its fight just yet. Willamette shares closed down $4.21, or 8.4 percent, at $45.75 on the New York Stock Exchange, still 17 percent below Weyerhaeuser's all-cash bid.
A 15-Month Staredown
Traders and analysts said the rejection places Weyerhaeuser in a precarious position. The Federal Way, Washington-based company has pursued the hostile takeover since November 2000, but has been stymied at every turn outside of managing to win three seats on Willamette's board.
Weyerhaeuser sweetened its hostile bid by 10 percent to $55 per share last month in hopes to break the impasse, but Willamette's outright rejection has left the company with little bargaining room, analysts and traders said.
"It would be a very risky proposition for (Weyerhaeuser Chairman and Chief Executive Stephen) Rogel to raise the bid and still risk losing the company," said one merger arbitrageur, who asked not to be named. "It's a matter of honor for him now, and he considers himself a very honorable guy."
Weyerhaeuser's tender offer for Willamette shares is due to expire on Jan. 9. Gaining the support of more than 50 percent of Willamette's shareholder base by then would give Weyerhaeuser a significant public relations victory and help it more effectively push for friendly negotiations.
But even then, Willamette would not necessarily be forced to sell, since accepting the tendered shares would trigger Willamette's "poison pill" anti-takeover defenses and make a deal prohibitively expensive.
And, by waiting to wage the board battle, Weyerhaeuser risks giving Willamette time to finalize a deal with Georgia-Pacific.
Early Friday, Portland, Oregon-based Willamette called Weyerhaeuser's offer inadequate and said it would no longer hold merger discussions at $55 a share.
Instead, it intends to pursue the Georgia-Pacific unit, which generated $7.9 billion in sales during 2000, 68 percent higher than Willamette's revenues of $4.7 billion.
Sources close to the situation said Willamette and Georgia-Pacific have been negotiating for the last few weeks, but the exact status of the talks was not immediately clear.
"I have enormous reservations about that deal, particularly when there is a $55 cash alternative sitting there," said Mark Wilde, an analyst with Deutsche Banc Alex Brown. "But I think by now the (Willamette) board has now gotten legal air cover if they move ahead with a GP deal at this point."
Earlier this week, Weyerhaeuser said a more detailed review of Willamette's books provided no financial rationale for it to raise its $55-a-share takeover offer.
Weyerhaeuser said the information provided by Willamette's advisers did not change its original assumption that a merger would generate cost savings of more than $300 million.
"We remain committed to this transaction," Rogel said in a prepared statement Friday. "Willamette's refusal to negotiate a definitive merger agreement now will only serve to impair the value to be received by Willamette shareholders."
Willamette, however, estimates that merging with Weyerhaeuser would produce savings in excess of $400 million, giving the hostile bidder room to raise its offer even higher.
Sources close to Willamette said the company's senior executives were never given a chance to rebut Weyerhaeuser's financial models.