Thank you, Glen.
Before I get started, I’d like to introduce Dick Taggart, our CFO at Weyerhaeuser.
Dick’s a new member of FEI. I don’t know how active the other members of your chapter are, but right now Dick must hold some kind of a record. This is his first meeting, and he’s already helped arrange for a speaker! Dick, I knew you’d hit the ground running.
But, then again, I’ve come to expect action from Dick. As our vice president of Finance, he played some very important roles in our Willamette acquisition. First, he helped us tell our story to the financial community and gain its support. Then, he had to go out and convince the banks to give us the money to make the acquisition.
In another demonstration of his “can do” approach, Dick helped raise more than $6 billion.
Now Dick has an even bigger role – he gets to help us pay down that debt! And he’s doing a fine job. We’re on target to return to our normal debt to equity ratios of between 35 and 40 percent within the next three years.
So, please join me in welcoming Dick to FEI and acknowledging the role he played in tonight’s topic: our acquisition of Willamette Industries.
There are two points I want to make before I start. The first is that I plan to keep my remarks fairly brief. This is a subject that I could talk about for hours, but I want to leave plenty of time to answer your questions.
Second, I want to emphasize a very important point – combining Weyerhaeuser and Willamette has been smoother and more successful than anyone imagined… except me! Having worked at both companies, I knew the naysayers were wrong.
But even I was pleasantly surprised at how well employees of both companies worked together to create a new Weyerhaeuser. We wouldn’t be enjoying the benefits of this acquisition if it weren’t for our people and the professionalism that they’ve displayed.
Many people didn’t think that would happen. After all, we’d spent 14 months locked in a very public debate about the futures of both companies. The media painted a picture of two companies that could never work together. After the acquisition, reporters poked and prodded hoping to find some lingering hard feelings.
They came away disappointed. Sure, there were many Willamette employees who thought the company could have succeeded on its own. Some spoke wistfully of the days before the acquisition.
But that wasn’t resentment. That was pride. Weyerhaeuser employees would have done the same thing had the tables been turned.
So when it came time to begin the task of integrating the two companies, employees from both sides rolled up their sleeves and said, “Let’s get on with it.”
As a result, we finished the initial integration work within six months. We captured our expected $300 million in synergies in half the time we projected. Our debt reduction plan is on schedule despite a difficult economic environment. And, more importantly, we’re creating a new company focused on speed, simplicity and decisiveness.
A company that is better equipped to compete in the global marketplace than Weyerhaeuser or Willamette could have done alone.
This isn’t to say that it’s all been easy. The acquisition itself was an experience that I’m not anxious to repeat.
Unsolicited bids – or hostile takeovers as the public calls them – are not things to be entered into lightly. In the battle to survive, the other company will say and do the things it believes are necessary to fend off the unwanted suitor.
Our outside public relations counsel warned me that as the CEO, I would be the personal target of many of those statements. They were right. The CEO of the buyer is always portrayed as the bully. And in this case another factor was at play.
I had come from Willamette... I had friends at Willamette.
The press focused on this unique connection. “Can you believe Steve would do this?” reporters asked Willamette employees who knew me.
In most cases, those who knew me understood why I had taken this path. They were proud of Willamette, but they also saw how strong a combined company could be. But, I knew that wouldn’t be the case for everyone... certainly not top management.
I also knew that Willamette wouldn’t agree to the bid without a struggle. Willamette management had already turned down three previous private offers from us. But I hoped a public offer would shorten the time it took for management to agree to our proposal.
Well, I was wrong. For 14 months we went back and forth. We offered new proposals ... Willamette turned them down. We elected board members favorable to the acquisition. Willamette decided to pursue a different acquisition on its own.
The press predicted we were on the verge of winning ... the press predicted we were on the verge of losing.
It was a full-time job. The acquisition effort did not take a vacation or recognize holidays. All of us took conference calls from family gatherings over holiday times.
But, if you truly want to understand what this experience was like, just ask Connie, my wife. When it was over, she said to me, “Steve, I married you for better or for worse, but only one hostile takeover.”
So why did we decide to pursue this course? Why didn’t we go in search of another company?
The answer is simple. I knew this was in the best interests of the employees of both companies. It was the right thing for the shareholders of both companies. And it was best for the customers of both companies.
I say that because of some fundamental changes in our industry and the customers we serve.
Our customers, for example, are not the people in this room. Oh, you may eventually buy our product, but you aren’t the ones that we sell to. Our customers are companies like Costco, Home Depot, and Wal-Mart.
Over the past decade, the emergence of these retailers has drastically changed how products reach end customers.
For example, the 10 largest office supply superstores, such as Office Depot, account for nearly all sales in that category.
In the home improvement area, it’s not quite as concentrated, but the story’s the same. Here, the 10 largest retailers – Home Depot, for example – account for nearly 44 percent of all sales.
As these retailers have grown, they’ve come to ask for more and more from their suppliers. They expect consistent quality and they want delivery on a national basis. Home Depot, for example, expects us to deliver the same quality in a 2 by 4 whether it’s to a Seattle store or one in Los Angeles.
The large retailers also want their suppliers to work with them to manage inventory. And let’s not forget cost. These retailers can access providers anywhere in the world in search of lower prices – even in the case of forest products.
All of our products are subject to global competition. Lumber from South America ... paper from Asia... pulp from Europe. Our customers can reach out to any corner of the globe for products... and they do. The only way for us to compete is to be more efficient and offer higher quality and better service.
Regional companies, even companies as efficient as Willamette, cannot meet these needs or compete in a global marketplace. Weyerhaeuser was well positioned in this area, but we needed to fill in some gaps.
For example, Weyerhaeuser didn’t have much of a presence in the uncoated freesheet market – or office paper as you know it. Willamette had that presence.
By combining the two companies, we now offer the complete range of paper products. High quality printing papers for books, brochures and annual reports. Cutsize sheets for office and personal use.
Willamette not only had the assets to fill in those holes, it had quality assets.
Prior to the acquisition, two companies were known to have some of the best facilities in our industry – Weyerhaeuser and Willamette. It wasn’t a case of buying a company and then “fixing it up.” We knew the combined companies would hit the ground running from day one.
As if that wasn’t enough, there was the fit of the two companies. During the acquisition we said that Willamette and Weyerhaeuser were a “hand in glove fit.” Their operations were close to ours. They had a similar culture. They were strong in areas we weren’t and visa versa.
Our experience has shown this to be true. Legacy Willamette timberlands operations have benefited from Weyerhaeuser expertise. The wood products operations of both companies have learned from each other. And the legacy Weyerhaeuser pulp, paper and containerboard operations are more efficient today because of Willamette.
Adding quality assets and people to an outstanding company, produces these kinds of results. And it’s given us additional capabilities to serve national customers.
The acquisition was also in the best interest of shareholders for both companies. We were convinced that Weyerhaeuser shareholders would benefit from the additional earnings that would result from the acquisition. Of course, that would only occur if we a paid a price acceptable to the majority of Willamette shareholders.
And, finally, the acquisition was in the best interests of employees because our new company is better suited to operate in the global economy.
While it’s true that we have closed a number of facilities, we are creating a company better positioned to continue providing jobs right here in the U.S. That may not have been the case without some of the operational efficiencies we’ve achieved since the acquisition.
The decision to pursue Willamette was not an easy one. But, given industry changes and the benefits Willamette would bring, it was the right decision.
Today, Weyerhaeuser is a stronger company. It’s a more agile company. It’s becoming the global leader we envision.
Will we need to make additional acquisitions in the future? Probably. Will we need to expand in other areas? Probably.
When? After we pay down our debt – right, Dick?
I’m often asked where we’ll look in the future and how we’ll pursue our strategies. Those are good questions, but questions that I’m not prepared to answer right now.
But I do have time to answer some other questions, now is your opportunity, so fire away!
