Weyerhaeuser's $2.65 Billion Forest

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Weyerhaeuser (NYSE: WY) will buy 645,000 acres of timberland from Longview Timber  for $2.65 billion. Weyerhaeuser plans to fund the deal with a 50-50 split of equity and debt that would total $2.45 billion. This company – and the timber industry in general – has been systematically positioning itself for the housing recovery. Who says only tech companies can mega-deal?

Weyerhaeuser has spent the past few years optimizing its business and cutting costs as it slowly morphs into a real estate investment trust (REIT). Weyerhaeuser's board wants to reduce its tax rate — becoming a real estate investment trust (REIT) will do that. Weyerhaeuser has unloaded $10 billion in assets since 2006. This $2.65 billion acquisition of Washington state-based Longview Timber is big — 640,000 acres of prime Washington state and Oregon timberland. This deal expands Weyerhaeuser's presence in the Northwest to 2.6 million acres. Weyerhaeuser controls 7 million acres of timberland, mostly comprised of old growth premium trees — this premium wood is key to this deal.

Good wood

Weyerhaeuser has just bought one thing it's commonly thought money can't buy — time. How? Trees take time to grow, especially the kind of trees you use to build homes. Weyerhaeuser just bought lots of trees — good trees, Douglas firs to be exact. Douglas firs, also known as Oregon pine or Douglas spruce, are the most desired wood for structural building. The product commands a premium price for the global export market. The Douglas fir is often cited as the world's best timber producer — it produces more timber than any other in North America. Douglas firs are responsible for flooring, plywood, furniture, pilings — even Christmas tree. This acquisition of Longview Timber puts Weyerhaeuser in a strong position to supply the market with many premium building materials.

Louisiana purchase

This space has been active. Louisiana-Pacific (NYSE: LPX) recently purchased a 50 percent share of a Canfor joint venture in British Columbia. Canfor is a major Canadian green-building products producer. Louisiana-Pacific Corporation has been busy making deals in Chile and Brazil. Louisiana-Pacific Corporation's LP SmartSide products are certainly innovative — who knew wood could be so "tech?"

LP SmartSide has been one of the go-to products for many homebuilders. They like the look of the product as well as the workability. That fact the product is "green" is a significant selling point for builders and home buyers.

SmartSide products are Louisiana-Pacific's line of treated, engineered wood siding, textured to simulate natural wood. Engineered wood siding is made of medium density oriented strand board (OSB). Medium density OSB is created by applying waterproof adhesives to rectangular wood strands arranged in cross-sectioned layers. In layman's terms, OSB is plywood 2.0. Products like SmartSide are increasingly becoming important because OSB has all but replaced plywood for many cost-conscious homebuilders. SmartSide products are less expensive, maintenance free, easy to install, environmentally friendly and are a durable alternative to expensive hard wood siding. SmartSide products are also very popular — even Bob Vila uses SmartSide products.

Brands, we got brands!

Universal Forest Products (NASDAQ: UFPI) is a smaller fish in this pond, but it has truly branded its products better than anyone in this space. With over 20 quality and distinctive brands, Universal Forest Products has focused on creating innovative and attractive wood products. Great hardwood decking, decorative railings, specialty products for raised garden beds, and just about everything in between. What Universal Forest Products lacks in market cap it makes up for in quantity and quality.

Louisiana-Pacific's stock has been weak of late, but it has in reality the only innovation in this space. It's only a mater of time before this stock price reflects this company's innovative bent. Weyerhaeuser has a good organic product, Weyerhaeuser Green Studs, but Louisiana-Pacific Corporation has been more innovative in the green-organic lumber space. Weyerhaeuser's deal is no doubt a counter to Universal Forest Products and Louisiana-Pacific Corporation's recent activity and product innovation. It's like Lakers vs. Celtics vs. Pistons in the 80s — only with timber.

Got wood?

With homebuilding stocks delivering solid returns, many want to capitalize and are focusing on lumber products. You don't have to be Steven Hawking to know lumber and the housing market are inexplicably tied. Universal Forest Products and Louisiana-Pacific Corporation are great companies poised to do well. Longview Timber is a fabulous pickup by Weyerhaeuser — you may want to keep tabs on this company. Right now, Weyerhauser is a weaker stock, but it currently has low volatility. This deal will certainly help, they are just not that many 640,000-acre old-growth forests in North America anymore. Yes, Weyerhaeuser's competitors have been very aggressive with key partnerships and surprisingly innovative green products. But this $2.65 billion deal assures that Weyerhauser will be standing tall when the dust settles.

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