Weyerhaeuser Company (NYSE:WY) made several announcements on Sunday around M&A and leadership changes. Weyerhaeuser announced: 1) it had signed a definitive stock purchase agreement to acquire Longview Timber from Brookfield Capital Partners for $2.65bn. Weyerhaeuser Company (NYSE:WY) is looking to finance the transaction with debt and equity); 2) it is exploring strategic alternatives with respect to WRECO which could include keeping, selling, merging or spinning-off the business; 3) Mr. Doyle Simons has been appointed as CEO elect, effective immediately to succeed Mr. Fulton as President & CEO on August 1, 2013.


 Weyerhaeuser Company (NYSE:WY) Conference Call

The company will host a conference call at 8:30am ET on Monday. Some keys for the stock to evaluate on its upcoming conference call — (a) the amount of EBITDA WY expects to acquire with the timberlands; (b) the amount of equity capital it expects to raise to finance the purchase; and (c) potential borrowing costs.

 Weyerhaeuser Company (NYSE:WY) Rationale

The company is growing its presence in timberlands and adding a CEO who is well-regarded by the Street with a very good track record. Combined with the acquisition of timberlands, the potential divestiture of Weyerhaeuser Real Estate Co. (WRECO) would also be positive for valuation multiples on a blended basis over the course of the cycle. WY stated the acquisition is accretive to Funds Available for Distribution (FAD), BAML analysts point out that low costs of borrowing make it easier for deals to be accretive in the current environment. WY is raising it annual dividend by eight cents to $0.88.
Negative for the stock, BAML also points out that WY is paying what initially appears to be a full price for the timberlands ($4000-plus/acre) and may need to finance the purchase with equity.

While we don’t know how profitable the acquired timberlands are, a potential sale/spin of WRECO could also prove dilutive, depending on timing and proceeds.