Georgia Pacific Bids $3 Billion for Great Northern
Georgia Pacific Corp. on Tuesday launched a $3.18-billion bid for Great Northern Nekoosa Corp., a buyout proposal that analysts said might trigger a bidding contest for Great Northern and lead to consolidation in the forest products industry.
The bid was something of a shocker because, in one analyst’s words, there had until now been an “unwritten rule” against such unsolicited offers. The acquisition would bolster Georgia Pacific’s position in the paper and cardboard market and make it the world’s largest forest products company.
The $58-a-share cash tender offer verified rumors that Atlanta-based Georgia Pacific would mount a takeover bid for Great Northern, a Norwalk, Conn., paper products company. Georgia Pacific said the offer is 50% higher than the price of a Great Northern share before last Thursday, when the value of the firm’s stock began to rise with acquisition rumors.
Great Northern closed at $62.875 a share on Tuesday, up $20.125 on the New York Stock Exchange, where it was the most actively traded issue.
The buyout proposal was outlined in a letter on Tuesday from Georgia Pacific Chairman T. Marshall Hahn Jr. to William R. Laidig, chairman of Great Northern. Hahn, in the letter, also requested a meeting to negotiate aspects of the offer.
“Unlike many of today’s transactions driven by financial engineering,” the letter said, “the merger of our two companies represents an excellent strategic fit based on industrial logic. In addition . . . this combination will result in a stronger and more competitive forest products company.”
Laidig issued a statement calling the bid “uninvited,” but did not respond directly to the acquisition proposal. Instead, Laidig--noting that the company’s directors have a legal responsibility to consider the offer--said Great Northern’s board would meet in “due course.” Georgia Pacific made the tender offer, generally considered a hostile acquisition method, because the firm’s advisers consider it to be the surest way to acquire Great Northern, said Gail Smith, a spokeswoman for the forest products giant. Smith said Georgia Pacific--a firm that traditionally sells more lumber products than paper products--wants to acquire Great Northern to expand its paper and cardboard production.
Great Northern has no effective anti-takeover defenses, but the firm might find a more friendly suitor, some industry observers said. Mark Kurland, an analyst at Mabon, Nugent & Co. in New York, said two other major forest products firms--Weyerhauser and International Paper--are among the companies that may vie for Great Northern.
“There will be a bidding war,” Kurland declared.
Kurland said the bid for Great Northern will trigger other buyouts and major consolidation in the forest products industry.
“Things will be going the way of the copper industry,” he said. “Instead of 10 or 12, we’ll end up with five or six.”
Robert Schneider, an analyst at the Chicago-based Duff & Phelps, also expects more consolidation in the industry.
“This bid is important because there was an unwritten rule against unsolicited takeovers in this industry,” Schneider said. “I thought there would be consolidation in this industry and this (takeover bid) will give it more impetus.”
Schneider said Georgia Pacific--now second to International Paper in forest products sales--would become the largest firm in the industry by acquiring Great Northern, No. 9 in sales.
By acquiring Great Northern, Georgia Pacific would be able to pursue plans to boost its sales abroad, said Julie Bryan, an analyst at the New York offices of S. G. Warburg & Co.
“Georgia Pacific believes it can become more competitive on a worldwide basis,” Bryan said. “By increasing capacity, they can lower their costs. Will that lead to higher exports? We’ll see.”
Bryan said Georgia Pacific may raise its offer to top counteroffers; but any boost would be slight--not significant--she said.
Georgia Pacific said it was offering to buy 100% of Great Northern’s shares. Georgia Pacific would pay $3.18 billion for the stock, would assume $1.8 billion in Great Northern debt and pay fees associated with legal work and financing--bringing the total to about $4.5 billion.
Georgia Pacific said Bank of America has pledged to provide $1.25 billion of the financing. Bank of America will also arrange other financial backing, Georgia Pacific said.
