Weyerhaeuser’s pending shutdown of its plywood and lumber operations in Columbia Falls, with 100 family-wage jobs axed, has many justifiably wondering if the forestry sector here in Northwest Montana has a future. Perhaps, but we should understand the past and present.
Even though we in the Flathead might view Plum Creek as having been part of Columbia Falls since the 1940s, kind of “ours,” kind of “local,” that’s as mistaken as thinking Anaconda was ever “ours.”
Plum Creek as we “knew” it was a young company, spun off in 1989 from Burlington Resources, a division of the Burlington Northern Railroad (BN), in turn created in 1970 by merging the Great Northern, Northern Pacific and Burlington railroads – the so-called James J. “Hill Lines.”
Why 1989? Well, Northern Pacific (NP) was a land-grant railroad, given title to every other section for 16 miles on each side of its route – almost 40 million acres, to be sold to settlers or fellow robber barons (much was), or mortgaged to build the railroad.
In the 1890’s and 1920’s, NP lands became collateral for gold-backed bonds, not for sale. Thereafter, on these collateralized lands, NP’s options were pretty limited, boiling down to benign neglect: NP sold trees to Montana mills that generated railroad traffic for both NP and GN. Montanans got to play (responsibly, we hope) on these lands, which just happened to be checkerboarded with Forest Service lands that charged nothing for recreational access. It was a great deal all around – while it lasted.
But the 1950-1990 era was abysmal for railroads. Many railroad corporations sought to jettison their tracks, trains and people while keeping their premium real estate – to sell some and squeeze more off the “keeper” properties.
To squeeze the keepers, NP had bought Plum Creek from the Dunham family in the 1960’s, calling its timber division Plum Creek. As for selling, NP’s gold bonds, maturing between 1997 and 2047, stood in the way. But in 1987, after paying $35 million to bondholders, BN had 1.9 million acres of “undeveloped property” released from the bond obligation.
BN quickly spun off its natural resources/land base in 1988. The next year, the Plum Creek “master limited partnership” spun off from Burlington Resources – with 1.5 million acres forming Plum Creek’s core. The deal involved an IPO of about $253 million, plus $325 million in debt (held by the “95 percent-owned subsidiary” Plum Creek Manufacturing) – a total of $575 million. Not counting sawmills, that’s $383 per acre, or $742 in 2016 dollars.
Critically, in 1999 Plum Creek converted into a Real Estate Investment Trust (REIT), the first “integrated” timber company to do so. PCL’s directors knew what they had – a revolutionary new business model for a fully matured sector – an utter gold mine in terms of profit-taking. To protect it, anti-hostile-takeover provisions were specifically written into Plum Creek’s REIT bylaws – which is why Weyerhaeuser, the world’s biggest, baddest timber beast, was unable to simply take over Plum Creek.
REIT conversion enabled Plum Creek, a minor Northwest wood-products maker, to morph itself into a 19-state, 6.5 million-acre real-estate empire. This is a huge success for Plum Creek’s investors – bought by Weyerhaeuser for $8.4 billion – for comparison’s sake, that’s $1,292 per acre ($667 in 1989) – and again, I’m not counting sawmills. I’ll explain next time.
But more important, in only 16 years from start to finish, America’s integrated timber industry dismantled itself. Timber companies, some a century old, separated their mills (and employees) from the real-estate assets – in a way, much the same as railroad holding corporations split away the old, stodgy core business (those darn trains) away from the sexy new core business, where the big bucks lay – real estate.
Timber’s disintegration phase – and the wild profits therefrom – has played out. Now come the mergers. For mighty Weyerhaeuser – the last integrated to convert into a REIT – to acquire the company that was first to undergo REIT conversion, is eminently sensible.
It makes sense in an historic way, too. After all, Frederick Weyerhaeuser planted his flag in the Northwest by buying 900,000 acres of, yep, Northern Pacific land grants from Jim Hill – for six dollars per acre.
Stay tuned, it gets better. I promise.