James River, Goldsmith Divide Up Zellerbach in a $1.5-Billion Deal
In a two-step deal worth an estimated $1.5 billion, Crown Zellerbach will sell roughly half of its operations to its major shareholder, Anglo-French financier Sir James Goldsmith, and the other half to James River Corp., a paper products company in Richmond, Va.
The sale, announced Monday and expected to be completed by March, marks a victory for Goldsmith, who spent the first half of this year fighting to take over Zellerbach, an asset-rich forest products company based in San Francisco. His goal was to gain control of the company’s timberland.
“The timber is the ‘crown jewel’ of Crown Zellerbach--in his eyes,” said George B. Adler, forest products analyst for Smith Barney, Harris Upham. Timber prices have been caught in a persistent slump, and industry executives and analysts say Goldsmith, who has other timber holdings, is counting on their eventual rise.
“Europeans tend to take a longer-range view of history than we (Americans) do,” a Zellerbach spokesman said. Goldsmith did not return a reporter’s telephone calls Monday.
Ended Battle
In July, Zellerbach ended its 8-month-old battle with Goldsmith when the financier was elected chairman following his acquisition of more than half of the company’s outstanding stock. Both sides said they were “engaged in discussion to resolve matters between them” and decide on the company’s future. Monday’s agreement is the result.
Under the plan, Goldsmith’s General Oriental Securities Limited partnership will sell its 13.6 million shares in Zellerbach back to the company in exchange for assets that Wall Street analysts estimate are worth from $700 million to $800 million. These include $90 million in cash, 1.6 million acres of timberland in the Pacific Northwest and the South, a container division and control of the lease on Zellerbach’s headquarters in San Francisco.
When that transaction is completed, James River then will purchase 90% of Zellerbach’s outstanding shares in a stock swap worth an estimated $740 million. The exchange rate will be based on the average price of James River shares in the 17 trading days before the swap offer is officially presented to shareholders, probably early next year. A maximum of 17.6 million Zellerbach shares is expected to be involved.
Includes Energy Operations
The operations of Zellerbach that James River will control involve pulp and paper mills, including those that produce communications and business paper, towel and tissue papers and flexible packaging. Also included will be Zellerbach’s energy operations, which will be leased to Goldsmith under a contract that allows him to buy the operations in 18 months for $25 million.
James River said it plans to keep the Crown Zellerbach name and will receive long-term supply contracts from the timberland and wood converting facilities that Goldsmith is buying and which provide raw material for Zellerbach’s pulp mills. In addition, Zellerbach will have rights of first refusal if Goldsmith sells those properties.
James River’s stock closed in New York Stock Exchange trading Monday at $37.25, down $1.625. Zellerbach’s closed at $41.625, up $2.75.
The two-tier sale has been approved by the boards of both companies but still needs the approval of shareholders. Both companies said neither segment of the sale can be consummated without the other. Completion of the sale also depends on getting a satisfactory report from Merrill Lynch, Zellerbach’s financial adviser, that the deal is fair to Zellerbach stockholders. The report is expected in a few weeks, the company said.
A spokesman for Zellerbach said that, with the exception of a few top management jobs that will be cut because of consolidation, none of Zellerbach’s 18,000 employees will lose their jobs. Zellerbach has 2,300 employees in California, including executives at its headquarters.
The spokesman said no more than 2,000 of the company’s 18,000 employees will end up working for Goldsmith if the deal is completed. Although at least one Wall Street analyst said that he expects Goldsmith to sell his Zellerbach operations within “two or three years,” Zellerbach insisted that the units would be sold as “on-going businesses.”
Lawyers for Zellerbach and James River say that the proposed sale will not activate special rights to buy Zellerbach stock in the event of a takeover--a so-called poison pill provision.
But James River is taking no chances: The company says it will terminate the deal if it cannot be satisfied that pending lawsuits concerning the enforceability of the “poison pill” pose no threat to its shareholders.
Consolidated sales for James River and the remaining Zellerbach operations are estimated to be $4.5 billion. For 1984, James River reported revenue of $2.5 billion and profit of $101.4 million. Zellerbach reported revenue of $3.1 billion and profit of $86.9 million.
