Weyerhaeuser Company WY recently announced that its shareholders, in a special meeting held on Feb 12, approved the company’s pending merger with its rival Plum Creek Timber Co. Inc. PCL. The company can now issue its common shares according to the terms and conditions of the merger. Since the announcement, the company’s share price has increased 1.71%.
In Nov 2015, Weyerhaeuser Company had signed the above-mentioned merger deal with Plum Creek Timber. The association will lead to the formation of a premier global timber, land and forest products Real Estate Investment Trust (“REIT”). As per terms of the agreement, the company will be issuing 1.60 common shares for every Plum Creek share. Upon completion of the transaction, Weyerhaeuser will repurchase shares worth $2.5 billion, making the mode of payment as 70% in stock and 30% in cash.
Weyerhaeuser and Plum Creek hope to receive the necessary approvals and close the merger by late first quarter or early second quarter of 2016. Once completed, shareholders of Weyerhaeuser will own roughly 65% of the combined entity, while the remaining 35% will be held by Plum Creek’s shareholders. The new REIT, which will retain Weyerhaeuser’s name and trading symbol, will have a dividend rate of $1.24 per share. Headquarters of the new-found entity will be based at Seattle and be operational by mid-2016.
The merger will likely be a win-win move for both the companies. For Weyerhaeuser, the consolidation will enable it to leverage the improving housing market in the U.S. as well as develop and offer better products and services for its customers. The company will adopt an improved capital allocation policy, reflecting a stronger cash position and solid balance sheet. In addition, it expects to realize $100 million of cost synergies annually, while predicting positive impact on per share funds available for distribution in the maiden year of the merger.
Weyerhaeuser, with a market capitalization of $11.5 billion, currently carries a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the industry include Acuity Brands, Inc. AYI and Beacon Roofing Supply, Inc. BECN. While Acuity Brands sports a Zacks Rank #1 (Strong Buy), Beacon Roofing Supply carries a Zacks Rank #2 (Buy).
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