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Q |
You
were largely responsible for putting together
the various land deals that now make up MRC
forest lands. What was your strategy in making
these land purchases? |
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Strategy 2—Use Stock to Buy Assets
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When
Merlo became, in 1968, a V.P. in one of the
largest timber companies in the United States—Georgia-Pacific
Corporation (GP)—his strategy for acquisition
would take shape. In this, Robert Pamplin,
GP Chairman, was clearly his mentor.
Founded in Augusta,
GA in 1927, GP moved its headquarters to
Portland, OR in 1954. By 1970, GP owned
3.5 million acres in the U.S. alone. The
company had grown so big that the Federal
Trade Commission (FTC) regarded it as a
monopoly. In 1972, the FTC ordered GP to
divest some of its acquisitions. GP was
to transfer 20% of its assets to a new corporation.
The FTC slapped other restrictions on GP
as well, e.g. the timber giant could not
make any timber-industry acquisitions in
the South, its original home turf, for a
period of 5 years.
The spin-off company
from GP was Louisiana-Pacific (LP). Initially
the spin-off was uncertain. “The FTC
had said that LP did not have enough ownership
of timber,” Merlo explained. In 1973
GP acquired 225,000 acres near Fort Bragg,
which once had been Union Lumber Company
lands, for, according to Merlo, $111 million.
“LP took 50,000 of the acres,”
Merlo said, “and GP took the rest,
which satisfied the FTC and won their approval
for the spin-off.” Merlo became CEO
of LP at its launching and remained at
its helm until 1995, at which time he was
directing an organization of 13,000 employees
with close to $3 billion in sales.
In what proved to
be a key decision, the FTC allowed LP stock
to be distributed to GP stockholders. In
effect, there were two companies with the
same shareholders. “It was a big advantage
that LP and GP both had premier stock
in the new company,” Merlo said. “I
was able to use stock to buy assets.”
Merlo illustrated how this strategy worked
in many of his acquisitions:
I
would offer, for example, $10 million
of GP stock and guarantee that it would
go up to $15 million in 3-5 years. This
would be tax-free stock earnings. Meanwhile,
I put $5 million of stock in reserve.
In no case, did I ever have to use the
reserve stock. It was an attractive deal
for the seller because he got the stock
at book value, which meant he did not
have to pay income taxes—plus he
would get $5 million appreciation on the
stock. You could only do this if you had
good stock, which we did. The time frame
for the terms varied. Three to five years
was an average. In the case of Crawford
Lumber Company, the terms were 11 months.
Of course, in later years, the laws surrounding
such deals changed.
Merlo’s aggressive
buying spree in northern California reportedly
prompted one GP official to quip, “Harry
is buying so many mills down there that
I hope he’s not buying the same one
twice!”
One early example
of this stock-for-assets approach within
Mendocino County was the L.P. purchase of
Hollow Tree Lumber Company in 1973. The
company was founded in 1946 by Bill Moores.
Its first sawmill was near Hollow Tree Creek
at present day Hales Grove, northeast of
Rockport on Hwy 1. LP acquired Hollow Tree
Lumber Company for $2 million in cash plus
LP stock valued at $900,000 but guaranteed
to appreciate to $1.8 million within 3 years
(UDJ 14 May 1973).
 The
name Hollow Tree Creek, by the way,
appears on the 1891 Government Land
Office (GLO) plat map for lands surveyed
between 1875 and 1888—so the name
preceded the lumber company by 60 or
more years. The MRC Ukiah Forestry Office
is currently in the old HQ of the Hollow
Tree Lumber Company.
UDJ
(Ukiah Daily Journal)
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