Texas Financier Plans to Make $780-Million Bid for Pacific Lumber
A company controlled by Texas financier Charles E. Hurwitz said Monday that it will offer to buy all the stock of San Francisco-based Pacific Lumber, a major California landowner and producer of redwood lumber, for $36 per share, or nearly $780 million.
Investors greeted the news enthusiastically, bidding up the price of Pacific Lumber shares on the New York Stock Exchange to $39, an increase of $6 from Friday. The closing price, $3 above Hurwitz’s bid, indicates that Wall Street is anticipating more offers, analysts said. About 655,000 shares were traded.
The Hurwitz announcement said the tender offer is contingent on his receiving a majority of the company’s 21.7 million shares outstanding and on successful arrangement of financing for the deal. The financier did not say when the offer will be launched.
Pacific Lumber President Gene G. Elam said in a telephone interview that he would not comment on the tender offer because “we have received nothing in writing” as yet from Maxxam Group, the Hurwitz-controlled company that formally announced the bid.
Known for Takeovers
Elam said Hurwitz called him Monday morning to say that the offer would be announced. Until Maxxam’s public statement, Elam said, Pacific Lumber’s management was unaware that the Hurwitz firm had previously amassed nearly 5% of its stock. Until then, Pacific Lumber had no stockholders with as much as 5%, a condition that could make the company more vulnerable to a hostile takeover because it has no major “friendly” shareholders to call on for support.
Hurwitz, who is known for takeovers--starting in 1978 with his successful acquisition of Los Angeles-based McCullough Oil (since renamed MCO Holdings)--made no further statements Monday after the stock market outstripped the price that he proposed to pay.
In his announcement, Hurwitz said Maxxam “felt obliged” to announce its decision to begin a tender offer at the same time as it was advising Pacific Lumber of it because of “unusual movement” in the lumber firm’s stock late last week.
Pacific Lumber’s stock had risen $3 to close at $33 as 46,600 shares traded last Thursday. Because the stock exchanges were closed Friday due to Hurricane Gloria, that was the last day of trading last week. Elam said Monday’s trading volume of 650,000 shares was “very heavy for us.”
Hurwitz’s statement said the offer “will be eminently fair to all the shareholders of Pacific Lumber and would serve the long-term interests of Pacific Lumber and its employees, customers and the communities of which it is a part.”
Expects Higher Bids
But analyst Chad Brown at Kidder, Peabody & Co., a New York brokerage house, characterized the $36 price as “kind of a low-ball bid.” Noting the surge in Pacific Lumber’s stock price, Brown said: “The widespread view seems to be that if something happens, it will be at a higher level.”
Although he noted that Pacific Lumber’s holdings of more than 170,000 acres of timberland in Northern California includes the largest single redwood acreage in existence, Brown said that, because such timberland rarely changes hands, “it is hard to get a good fix on the values.”
Pacific Lumber reported a net profit of $44.6 million for 1984 on sales of $281 million. But its earnings were down 34% in the first six months of 1985 from the same period last year, in part due to the slump in lumber sales.
The Hurwitz announcement said that the New York investment banker Drexel Burnham Lambert will be dealer-manager for the intended tender offer. Drexel Burnham specializes in raising financing for clients through sales of high-risk, high-yield securities known as “junk bonds.”
Analyst Brown said debt financing has often been used in recent takeover battles because it allows suitors to quickly raise more money to make higher bids, if necessary. Also, because most of Pacific Lumber’s current capital structure is equity, or common stock, the use of debt financing to acquire it would be probably be considered preferable to an offer that would add more stock and thus dilute the ownership, he added.
And a suitor could also afford to pay a premium price for the stock and then replace much of that equity on the company’s books with debt, Brown said.
Maxxam, listed on the New York Stock Exchange and headed by Hurwitz as chairman and chief executive, is a New York-based real estate management and development firm. MCO Holdings, of which Hurwitz is also chairman, owns about 42% of Maxxam’s stock.
Maxxam formerly was Simplicity Pattern, in which Hurwitz and affiliates bought a controlling interest in May, 1982. The Simplicity Pattern subsidiary was sold last December. Its principal businesses currently are real estate management and development in western New York, Florida and Georgia, and resort operations, time-sharing and land development and sales in Puerto Rico. The company has previously indicated that it intends to acquire an operating company outside the real estate industry.
Maxxam’s stock closed Monday at $12, off 50 cents as 8,500 shares were traded. PACIFIC LUMBER AT A GLANCE: REVENUES The company is a leading producer of redwood lumber and owns 170,000 acres of Northern California timberlands. It also prdouces welding equipment. NET INCOME In millions of dollars
1982 1983 1984 23.2 28.4 44.6
Assets-$277 million--------Employees-3,000 12 mo. Stock Price Range (NYSE)--$39-$23 Monday’s Close--$39
