Good morning. It’s a pleasure to be here today in
the beautiful capital city of Salem.
As a native Oregonian,
I have fond memories of visiting Salem as a child and gazing in awe at the
22-foot-tall, golden pioneer statue high atop the capitol rotunda. Today,
I feel a bit like a pioneer myself, representing what we’re calling the
new Weyerhaeuser Company … new partly because of our combination with Willamette
Industries, but also because of a new culture we’re creating. This is a
culture of greater speed, simplicity, decisiveness and frugality.
A couple former Willamette facilities are within a short drive
of Salem—the sawmill at Dallas and the engineered lumber mill in Stayton—but
Weyerhaeuser didn’t need to buy Willamette to be involved with Oregon and
Salem.
We’ve had a presence in Oregon since 1902—two
years after Weyerhaeuser Company’s founding—when we bought some timberland
near Coos Bay. And, at the time we acquired Willamette, we were operating
a facility right here in Salem.
This is our Space Kraft
plant and it makes extra-heavy, corrugated packaging. There are photographs
on your tables of a mini-van on top of one of our Space Kraft shipping containers.
That shows how strong they are.
Space Kraft also makes
a seamless and collapsible corrugated paper container that can hold up to
300 gallons of liquid. That’s right, liquid! All kinds … from fruit juice
to motor oil. These liquids are shipped worldwide in paper. Seems a bit
strange, doesn’t it?
But then, what’s normal anymore?
We use lasers to correct our eyesight. We stick computer chips in our pets
to keep track of them. And, every day, millions of people talk to each other
over vast distances without wires. Some can even see each other.
In
the political arena, the Cold War is becoming a distant memory … Russia
is now an ally … and China is fast becoming our largest capitalist competitor.
So, what’s normal? Change! You could even say that change has become
the status quo.
Driving to today’s meeting, I noticed
a bumper sticker on the car in front of me. It said: “The whole world is
subject to change – and we’re right on schedule.” With all the changes we’ve
made this past year at Weyerhaeuser—and with all the changes we’re continuing
to make—we’re also right on schedule … on schedule to becoming the global
leader in our industry.
The Weyerhaeuser-Willamette union—which
began a year ago this week—was a huge change for all of us. But it made
sense for both companies and, I believe, for Oregon.
Weyerhaeuser
is better positioned to succeed in today’s economic environment—and that
includes our former Willamette facilities.
In this anniversary
week, let’s reflect on why it made sense to put these two companies together.
For me, the story line is not “Washington forest products company
buys Oregon forest products company,” but “two Northwest forest products
companies with similar histories and values join forces to become a global
powerhouse.”
Willamette was a remarkably successful,
mid-size company. It took a focused, no-frills approach to manufacturing.
What Willamette people did, they did well and at low cost.
But
the winds of change—for Willamette and the entire industry—have been gaining
force for some time. Like a winter storm raging through the Willamette Valley,
consolidation and globalization have altered the business landscape.
It’s my belief—and the belief of many in the investment community—that,
when the storm subsides, about only ten, highly efficient, major players
and a sprinkling of small, niche operators will survive in the forest products
industry … worldwide. It’s doubtful that Willamette could have survived
indefinitely as an independent, mid-size company.
Why
do I say this?
For an answer, look to Costco … Staples
… The Home Depot … OfficeMax … Wal-Mart … Fred Meyer … and the other retail
giants that dominate the marketplace. Like it or not, much of the commerce
in North America is gravitating to these “big box” retail outlets. Who’s
to blame for this trend? We are. As consumers, we demand the variety and
low prices these chain stores provide.
Now imagine you’re
a company like Weyerhaeuser in this changing business environment, one that,
in our industry at least, is putting a premium on size and geographic reach.
You need to make strategic decisions that will serve your shareholders,
your customers and your operating communities.
To do
so, you need to understand what’s happening in the rest of the world, and
you must adapt. That means growing bigger so you can provide everything
the customer wants—when and where the customer wants it.
But
you don’t want to get bigger by building new plants. You want to take advantage
of the efficiencies and synergies attainable through quality acquisitions.
In short, consolidation is the key to achieving these efficiencies and synergies—and
it’s already well underway.
Over the past few years,
we’ve seen International Paper acquire Union Camp, Federal Paperboard and
Champion … Georgia-Pacific absorb Fort James …. Jefferson Smurfit combine
with Stone Container … Mead and Westvaco join together … and Weyerhaeuser
acquire MacMillan Bloedel and Trus Joist as well as Willamette Industries.
The same thing is happening overseas, and some foreign
companies have purchased U.S. companies. For example, Stora of Sweden and
Enso of Finland merged and then purchased Wisconsin-based Consolidated Papers.
You may not be familiar with some of these names or mergers, but many rival
the size of the Weyerhaeuser-Willamette combination. We’re neither the first
nor the only consolidator in our industry.
Securities
analysts uniformly agree that our industry must continue to consolidate
to be viewed as an attractive choice for investors.
For
Weyerhaeuser, the answer is growth through acquisition because it enables
us to grow without adding capacity that is simply not needed. Within Weyerhaeuser’s
own system, we can remove high-cost, inefficient capacity and rely on our
most cost-efficient facilities to supply customers worldwide.
Let me give you two examples of how the Willamette acquisition
is already paying off in terms of capturing synergies— efficiency gains
through combination—and better serving large customers.
Just
before acquiring Willamette, Weyerhaeuser won all of the corrugated-box
business of Tyson Foods. Previously, Tyson had bought its corrugated packaging
from mid-size suppliers.
But as it acquired new businesses
and grew into a $23 billion company, it realized it needed to consolidate
its packaging suppliers to obtain savings and gain consistent quality across
a large geographic area.
You probably associate the Tyson
name with chicken. However, since Tyson has acquired beef and pork processing
companies, Tyson now refers to itself as a “purveyor of protein.”
And it’s a purveyor of significant proportion. Tyson’s packaging
needs represent about two percent of the entire corrugated-box business
in the United States. That’s a bundle of boxes!
To adequately
supply Tyson, we expected to spend $25-30 million dollars to upgrade eight
Weyerhaeuser facilities.
Then came the Willamette acquisition.
The added capabilities and geographic reach of the Willamette packaging
system enabled us to cut our freight costs … use assets more efficiently
… and reduce the amount of capital required by $10-12 million dollars.
Now that’s synergy!
Here’s another example:
Willamette sold its lumber products through middlemen. This offered some
advantages, but it typically resulted in lower returns on lumber sales.
Weyerhaeuser’s distribution system enables us to flow lumber from former
Willamette sawmills—including the nearby mill at Dallas—directly to The
Home Depot, one of our largest wood products customers.
The
results?
For Weyerhaeuser, the return is higher because
there’s no middleman. For The Home Depot, the benefit is obtaining a larger
volume of quality products from a single supplier. And for consumers, the
benefit is that lumber from our new Oregon mills is now on the shelves of
the Home Depot stores in Albany, Eugene, Bend and other parts of Oregon
and the Northwest.
So the acquisition makes sense because
it positions the new, larger Weyerhaeuser as an ultra-competitive force
in a consolidating marketplace.
And there’s more.
Willamette and Weyerhaeuser assets and operations are a “hand-in-glove”
fit. The combined company is number one, two or three in the world in private
forest ownership … lumber, engineered wood products, and structural panels
… softwood market pulp … and packaging and fine paper.
The
“new and improved” Weyerhaeuser creates the opportunity to use our assets
better and to lower costs. We projected $300 million in annual synergies
at the end of three years—and we’re on our way to achieving these cost savings.
By the end of last year, we’d achieved $184 million worth on an annualized
basis. After 12 months of working together, the transition to operating
as one company is fairly complete. Our new leadership structure is set,
and most operating decisions have been made.
Our new
employees from Willamette are every bit as good as we expected—and they’re
teaming well with our longstanding Weyerhaeuser workforce. We’re capturing
the best of both companies, with a focus on simplicity, efficiency and economy.
And customers are excited about how the new Weyerhaeuser can position them
for the future.
Together, as I indicated earlier, we’re
an $18.5 billion global powerhouse with operations and/or sales in more
than 65 countries. We have the marketplace presence to not only survive,
but thrive.
Now, I realize that many of you in the audience
are leaders of small businesses and I certainly don’t want my remarks to
be interpreted as indicating there is no room for small businesses in the
North American or global economies. I’m aware that 80 percent of Oregon’s
businesses are small businesses, and small businesses are absolutely essential
for providing many, many goods and services.
But in our
industry, where new paper machines cost upwards of a billion dollars and
both markets and competition are global, size and geographic reach matter.
Of course, when you put two large companies together, there are
some overlaps—and, inevitably and unfortunately, resolving these overlaps
often costs jobs. And we have downsized some functions and closed a few,
less competitive, plants.
However, when you look at the
“bigger picture,” it’s clear that Oregon is now – more than ever – one of
Weyerhaeuser’s most important operating states.
Combining
Weyerhaeuser’s and Willamette assets, we now own and operate more than twenty
manufacturing plants in Oregon, as well as forestry offices, recycling centers,
building materials distribution centers, tree nurseries, seed orchards and
support offices in eleven counties.
We employ close to
4,700 people statewide – and we manage slightly more than 1 million acres
of sustainable forestland in 14 Oregon counties. Nearly 56,000 acres are
right here in Marion and Polk counties.
Our timberland
in this region is a large investment and supports our mill in nearby Dallas.
Like all our timberlands, it illustrates both the challenges that come with
our business today and the care we take in managing our forests.
Our first challenge—actually, a commitment—is one of stewardship.
It involves integrating the business of growing and harvesting trees with
the protection of wildlife, plants, soil, and water quality.
Managing for all the benefits offered by our forests has earned
us third-party “sustainability certification” for all our Oregon forest
ownership—under tough standards defined by the Sustainable Forestry Initiative
program.
Certification is important because it provides
assurance to customers and community partners—like you—that we are managing
our forestlands for the long term. On top of this industry program, we can
add the Oregon Forest Practices Act, the Oregon Plan, and millions of dollars
in stewardship projects.
So we’re meeting the stewardship
challenge—not just because it’s the law—but because it’s the right thing
to do.
So where does Weyerhaeuser go from here?
When I look to the future, I see a strong and competitive company
anchored in the Northwest with a global reach in operations and sales.
There’s no question that the recession, overcapacity—or too much
supply—and a strong dollar will continue to challenge us in the near term.
However, keep in mind we make products people need … wood for homes
and furniture … pulp for paper and diapers … paper for printing and copying
… and packaging that brings all the products people need to their local
stores.
You can be sure consumers worldwide will continue
to need and want Weyerhaeuser products. With the efficiencies we’re capturing,
our dedicated and skilled work force, and the size to compete in the global
marketplace, our long-range prospects are very promising.
Oregon
will help us achieve our vision of being the best forest products company
in the world and a global leader among all industries. Oregon is a friendly
place for a forest products company to do business. People here understand
and accept—even welcome—forestry activities, and government policies are
conducive to our success. Not too long ago, Oregon had one of the highest
timber tax rates in the nation. Now, it has one of the lowest, much lower
than the state of Washington’s. This is because Oregon has moved from a
severance tax on timber harvest to an ad valorum tax on timber land.
This change recognizes that working forests today are primarily
plantation forests that are harvested and re-grown indefinitely … like a
crop. This is a much fairer view than treating renewable forests like mining,
which involves the extraction of a non-renewable resource. Among others
who deserve credit for this positive development is Oregon’s new governor
Ted Kulongoski.
For all these reasons, Oregon will continue
to be a company stronghold in terms of operations, sustainable forest management
and community support.
In this regard, we’re committed
to continuing our support of the communities that support us. For Oregon
as a whole, in the last five years our foundation has granted five million
dollars to non-profit groups. An example in Salem is our recent grant to
the capital campaign for the Boys and Girls Club of Salem, Marion and Polk
Counties.
In addition, our employees and retirees have
donated thousands of dollars through United Way and contributed thousands
of hours through our employee volunteer program. All this is a natural extension
of Weyerhaeuser’s citizenship value.
In conclusion, Weyerhaeuser
views itself as a corporate citizen of Oregon. We want to grow with you.
We believe we’ve learned from the past and that the present is our launch
pad for the future. I’m convinced we have the leadership and work force,
the enthusiasm, the pride, and the skills to take advantage of the opportunities
that lie ahead as we write the next chapter of Weyerhaeuser’s history in
Oregon.
Thank you for hosting me today—and for all you
do to keep your community strong and opportunity alive.
