Settlement Reached in Pacific Lumber Suits

Maxxam Inc., the Houston-based investment firm headed by Charles E. Hurwitz, agreed in principle Tuesday to pay $52 million to settle lawsuits brought by former shareholders in Pacific Lumber Co., which Hurwitz took over in 1985.

In the suits, filed beginning in 1988, the former shareholders alleged that Hurwitz, the former board of Scotia, Calif.-based Pacific Lumber and others used fraud and deception in the acquisition. The board members were accused of breaching their fiduciary duties by accepting a price of $40 a share in one of the first hostile takeovers financed by junk bonds.

Hurwitz raised $450 million of the $863-million purchase price with the help of Michael Milken and Drexel Burnham Lambert Inc.

Other defendants in the agreement--which apparently settles all lawsuits connected with the takeover--include the former directors of Pacific Lumber and Salomon Bros. Inc.--the lumber company’s financial adviser at the time--and Jefferies & Co., the Los Angeles brokerage.

The defendants in the case, which would have gone to trial Tuesday, denied wrongdoing but said the settlement will save the costs of a trial as well as “the diversions, distractions and uncertainties of litigation.”

The settlement apparently applies to other Maxxam securities litigation that was pending before Judge Milton Pollack in U.S. District Court in Manhattan. It is subject to notification of class-action plaintiffs and a fairness hearing before Pollack.

Environmentalists and angry shareholders have contended that the former board members should have known that Pacific Lumber lands held at least 40% more timber than the company estimated--including the last big private stand of old-growth redwoods in California. It was this extra value that allowed Hurwitz to finance the takeover.

Hurwitz has since angered environmentalists by dramatically stepping up timber cutting, in part to pay for the takeover.