Seattle Post-Intelligencer

Weyerhaeuser holds fast to timber, shareholders told

April 21, 2006 By BILL VIRGIN

FEDERAL WAY — Weyerhaeuser to Wall Street: We're keeping our trees.

Bucking an industry trend of forest products companies spinning off their timber holdings or dramatically restructuring themselves, as well as calls by some investors for Weyerhaeuser to do the same, Chief

Executive Steve Rogel used his speech at Thursday's annual shareholders meeting to reinforce the message that "timberlands are the nucleus of this business."

Some forest products companies, reacting to investor pressure to boost their stock prices, have resorted to such measures as selling off their timberlands (as International Paper did) or converting to a real estate investment trust (as Plum Creek Timber and Potlatch have done and Longview Fibre plans to do).

Weyerhaeuser, too, has been under pressure to boost its stock price by doing something with its timberlands. "We've had many calls to do many things with our timber," Rogel said after the meeting.

Weyerhaeuser prefers its model of extensive timberland holdings feeding its lumber, panel, paper and packaging units.

"Many shareholders tell us they hold Weyerhaeuser shares because of our well-managed timberland assets," he said. "Weyerhaeuser knows timberlands — this is the core competency of the company." Weyerhaeuser's preference would be for Congress to change the tax code, which Rogel says puts traditionally structured timber companies at a disadvantage. Weyerhaeuser says gains on timber sales are taxed at 15 percent in a real estate investment trust, versus 35 percent for a conventional company.

"We're optimistic we can achieve tax relief in Congress," Rogel said. If Weyerhaeuser doesn't get that help, it has some other options in mind, which Rogel declined to specify. advertising

The company is, however, restructuring other parts of its business. On Thursday it announced that its multiple wood-products businesses have been consolidated into one, called iLevel; the aim is to have one contact point for builders and dealers to buy lumber, panels and engineered wood products.

Weyerhaeuser also has been selling or closing mills and operations (it closed a lumber mill in Aberdeen and a specialty pulp mill in Cosmopolis) it doesn't think fit its long-term strategies. Late

Thursday, Weyerhaeuser announced that it is negotiating with two companies to sell its composite panels business in the United States (including two mills in Oregon) and in Europe. Rogel said the company has retrenched in containerboard, as more manufacturers who once used its boxes move production overseas.

Establishing a market presence in China has proved to be "a daunting task," Rogel said. Instead the company is turning its attention internationally to South America.

This year's annual meeting was much more subdued than last year's raucous affair, which ended in disorder. Reversing a policy that angered critics last year, Rogel took questions directly from shareholders and guests, rather than requiring that they be submitted in writing.

Weyerhaeuser also changed the physical layout of the meeting, held at its corporate headquarters. Instead of being seated in the front rows facing a raised dais, directors and senior executives sat in chairs facing the audience. Rogel himself, in answering shareholder questions, came down from the dais and sat in a raised chair.

While the tone was more orderly and civil, Weyerhaeuser still faced pointed questions about its environmental policies. Most had to do with a controversy in Ontario, where the Grassy Narrows First Nation is objecting to timber harvesting.

The environmental group Rainforest Action Network has been holding demonstrations and news conferences targeting Weyerhaeuser housing developments that it says use wood from the Grassy Narrows area. It warned that Weyerhaeuser's reputation with customers will suffer if it doesn't change its practices.

"I fear Weyerhaeuser is not ready to listen to concerns of thoughtful citizens," said Michael Brune, executive director of Rainforest Action Network.

Rogel said the dispute is one of several across Canada involving tribal land claims, adding that Weyerhaeuser doesn't do the timber harvesting itself, but buys timber from Abitibi Consolidated, which holds the lease.

Representatives of Grassy Narrows and RAN took the step, unusual in corporate shareholder meetings, of nominating three candidates directly from the floor. Weyerhaeuser said the candidates were nominated by shareholders but weren't shareholders themselves, and said none received a vote.

Shareholders approved two resolutions. One, which received 55 percent of the votes cast, calls for a majority rather than a plurality of votes to ratify director nominees. The other, with 69 percent, asks the company to require only a simple majority on matters submitted to shareholder vote, instead of higher percentages. The resolutions are advisory only, but Rogel said the board will consider them.