Good morning. It’s a pleasure to return to the city
where I spent many wonderful years. In fact, I’ve spent almost as much time
in Oregon as I did in my home state of Washington, and I have a great regard
for Oregon and its people.
The headline for today’s
meeting is the "Big Deals Breakfast Forum." I don’t think I need to tell
you what Weyerhaeuser’s "big deal" has been for the past year and a half.
To borrow from the title of a well-known Oregon novel,
there were those who considered our intention to combine with Willamette
as little more than a "great notion" – perhaps even less than a great notion.
I’m also well aware that there are Oregonians who lament the acquisition
of Willamette by Weyerhaeuser. Nonetheless, today I want to share my thoughts
on why I believe Weyerhaeuser’s acquisition of Willamette can be viewed
in a positive light even in Oregon.
To begin with, you
can rest assured that while the Willamette Industries’ name may disappear,
its spirit will live on within the combined company. Why am I so sure of
that? First, because it lives on within me – and I am the CEO.
But second and more importantly, because Willamette’s can-do attitude
of "doing more with less" and "making the most of the best" is one of the
reasons we pursued Willamette.
What are some of the other
reasons?
- The "hand-in-glove" fit
of our combined assets will make us number one, two or, at worst, number
three in the world in our forest management, building materials, packaging
and fine paper businesses.
- The combination
also creates the opportunity to better use our assets and to lower costs
in these businesses. In fact, we expect to gain 300 million dollars per
year in synergies, or efficiency savings, from the combination.
And, contrary to what some alarmists proclaimed, relatively little
of this amount will come from reductions in the Willamette work force.
- Also, Weyerhaeuser and Willamette share complementary
management strengths and cultures. Both companies were founded by men of
German origin and men of high integrity. Both companies began in the Pacific
Northwest early in the 20th Century and have been pioneers in sustainable
forestry. Both companies have excellent leaders and excellent people.
Of course, there are differences in the way we get
things done. And, in this vein, we can learn from Willamette and Willamette
can learn from us.
In spite of these advantages, I’m
sure there are those who will say, "Even so, why couldn’t you have left
Willamette alone to pursue its future as an independent company? It was
doing quite well by itself, thank you very much."
Quite
true … up to this point in time. But the clouds of change are gathering.
Consolidation and globalization are sweeping the business landscape – and
our industry is late to the party. It’s my belief – and the belief of many
industry-watchers – that when the dust settles, there will remain no more
than ten major global players, and a bevy of small, niche suppliers.
The "tweeners" – the mid-size companies – will gradually disappear.
Why do I say this? Let me ask you to participate in a simple demonstration.
Please raise your hand if you’ve ever shopped at any of the following retail
chains: Costco... Staples... Office Depot... OfficeMax... Lowe’s... Home
Depot... Fred Meyer... Walgreen’s. Now raise your hand if you’re shopping
more now at these so-called "big box" stores than you did three years ago.
The point I’m making is that, like it or not, much of the commerce
in North America – and elsewhere – is gravitating to these large chains.
Who’s to blame for this trend? Well, we all are.
As
consumers, we’re demanding the combination of the large selection and low
prices these stores can provide.
Now, imagine you’re
a company like Weyerhaeuser that must capture the business of many of these
major buyers. What do you do? Well, you do what these chains do. You provide
what the customer wants.
And what do the large chains
want from their suppliers?
- Product availability
and selection.
- Choice of features, and perhaps unique features.
- Just-in-time delivery over large geographic areas – often national
or greater.
- Consistent quality at every outlet.
- Electronic
transactions to lower their costs.
- The ability to manage inventory
across the entire chain.
And they prefer to do business
with only a handful of suppliers – sometimes a sole supplier – for an entire
category of products, such as wood or paper products. Let me give you two
examples of how Willamette’s combination with Weyerhaeuser is already paying
off in terms of serving a large customer.
Weyerhaeuser
recently won all of Tyson Foods’ box business, amounting to about 2 percent
of all U.S. packaging demand. Tyson used to buy from mid-tier suppliers
until Tyson consolidated and grew to a 23-billion-dollar company.
To adequately supply Tyson, we were facing the need to spend 25
to 30 million dollars to upgrade eight facilities. With the addition of
the Willamette box plants to our system, we can reduce freight, improve
asset utilization and reduce the amount of capital required by 10 to 12
million dollars. And we can serve Tyson better.
Another
example: By flowing Willamette lumber to one of our large customers – rather
than selling it through middlemen – we’ve been able to achieve a significant
lift in price, while providing the customer a larger volume of quality product.
These are a small sample of the many opportunities now available through
the combination of Willamette and Weyerhaeuser.
Anyway,
there’s no use fighting or ruing the consolidation of our industry. 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 … Temple-Inland capture Gaylord
… and, of course, Weyerhaeuser has now combined with MacMillan Bloedel,
Trus Joist and Willamette.
Overseas, UPM and Kymmene,
both of Finland, merged to become one of the world’s largest forest products
companies – and then bought German paper producer Haindl.
Stora
of Sweden and Enso of Finland merged and then purchased Consolidated Papers
in the U.S. The Japanese company, Nippon Paper, just acquired Daishowa.
Many believe this consolidation is good for the industry. Why?
Because the forest products industry historically has been so fragmented
it’s been hard for any company to provide its shareholders a reasonable
return on their investment. Having fewer, larger companies should generate
efficiencies that benefit both customers and our industry.
Financial
analysts almost uniformly agree that our industry must continue consolidating
to be viewed as an attractive choice for investors.
The
ever-quickening pace of globalization also adds to the need for size. Paper
and wood products already trade across international boundaries and, for
most of them, prices are set globally.
Increasingly,
competitors are coming from Europe, South America, and Asia. Increasingly,
North American companies are doing business overseas, even locating operations
there.
Weyerhaeuser has customers in 65 foreign nations
and offices or operations in 17.
Over the past few years,
Weyerhaeuser has made major investments in timberlands and facilities in
New Zealand, Australia and Uruguay. We believe much of the growth in our
industry will occur in Asia and the Southern Hemisphere.
This
is the world in which we compete. I firmly believe we’re more competitive
as a larger company … and I firmly believe that the people of Willamette
are better off with us than competing against us.
To
all those who pine for the past, let me refer you to a bumper sticker I
saw the other day: "The whole world is subject to change – and we’re right
on schedule."
While I’m on the subject, there’s one more
reason why the Weyerhaeuser-Willamette combination makes sense.
It also relates to size. When it comes to share price, there is
a "size premium."
With the rise of huge mutual and pension
funds, companies with small market caps have become relatively illiquid
– that is, major buys and sells by these large funds can significantly drive
share prices up or down. Big investors don’t like that, so they tend to
avoid small-market-cap stocks, depressing their value. A company with less
than 20-billion-dollars in market cap falls into this unfavorable camp.
In our industry, only one company – International Paper
– has been large enough to escape this camp, and I-P has traditionally enjoyed
a higher price-to-earnings ratio than other industry members. With our larger
size because of the Willamette acquisition, Weyerhaeuser should also be
able to obtain this benefit.
So how is the integration
of Willamette into Weyerhaeuser going? So far, even better than I expected
– and I was optimistic to begin with.
Relationships
between Willamette and Weyerhaeuser people on our integration teams – as
well as those through the conduct of normal business – have been cordial,
professional, with an attitude of "let’s get on with it." Already, we’ve
announced directional decisions for our major businesses and staff groups.
By now, you may appreciate why, for Weyerhaeuser, the
acquisition of Willamette was "the dream deal" – and why I believe the deal
will prove beneficial to Willamette people as well.
But
you still have concerns over whether it’s a good deal for Oregon.
I’m pretty sure many of you regret losing one of Oregon’s Fortune
500 companies. I read the newspapers in Oregon too. From them, I also know
there is concern over whether our degree of community support will equal
Willamette’s.
And some may question whether Weyerhaeuser
will be a fully participating member of Oregon’s business community.
I want to provide you some assurance on each of these concerns.
It is true that the headquarters for the combined company will now reside
in Federal Way. However, that’s still in the Pacific Northwest and only
140 miles from Portland.
And, as I indicated, I expect
the Willamette way of doing things to have a strong, positive impact on
the Weyerhaeuser way of doing things – a super hybrid, if you will. So it’s
not as if the soul of Willamette has disappeared or been consigned to some
remote and unfriendly region.
Furthermore, Oregon now
becomes one of Weyerhaeuser’s most important operating regions, with 1.2
million acres of timberlands, nearly 50 facilities, and 6,000 employees.
Although we won’t maintain a Portland headquarters office,
we will continue to maintain regional offices in Oregon. How many and where
they’ll be located is a matter for the integration teams to recommend to
our Senior Mangement Team.
And, if you don’t think Oregon’s
and Willamette’s interests are represented on our Senior Management Team,
think again.
Three of our 10 members – Marv Cooper,
Mick Onustock, and myself are from Willamette. Another, Rich Hanson – the
leader of the integration effort – is an Oregon native and a graduate of
the University of Oregon, and has spent most of his working life in Oregon.
Rich is already active on many boards and organizations within
Oregon. He will be the one I work with to make sure we stay fully involved
in this great state.
What about community support? I’ve
addressed this topic in numerous newspaper interviews and in remarks to
Willamette employees and community leaders. I’ve made two basic points.
First, Weyerhaeuser’s commitment to Oregon communities where it does business
has been at least equal to Willamette’s.
Our Weyerhaeuser
Company Foundation grants to Oregon non-profit agencies have totaled more
than 2.7 million dollars over the past five years.
In
addition, our employees and retirees have donated thousands of dollars through
United Way and contributed thousands of hours through our employee volunteer
program, Making Waves.
In addition – and this is the
second point – we’ve committed to maintain the historic level of support
from Willamette to Oregon communities for the next five years. This is regardless
of whether our combination leads to the elimination or joining together
of some of the facilities now operated by each company.
But
will we be as much a part of Oregon’s business community as Willamette was?
We certainly have every intention of doing so and that’s one reason I wanted
to join you this morning. Those of you familiar with Weyerhaeuser know that
we maintain a strong presence in the business community of every province,
state and community in which we operate.
In sum, I believe
Oregon has gained at least as much, and perhaps more, than it lost when
Weyerhaeuser acquired Willamette.
Part of that conviction
stems from my belief, as stated earlier, that Willamette would have found
it increasingly difficult to compete against the ever-larger companies in
our consolidating industry. However, with Weyerhaeuser, Willamette now has
the opportunity to help grow the global forest products leader.
There’s also pride in being a key state for the world’s best forest
products company.
That’s Weyerhaeuser’s vision and it’s
not far away. In fact, two investment bankers recently confided that Weyerhaeuser
already has created the industry leader – and Willamette and Oregon are
vital pieces of that success.
So, in conclusion, let
me share my conviction that Weyerhaeuser and Willamette joining forces is
more than a great "notion." It’s a great idea … a great combination … and
a great beginning.
