News | June 22, 1999

Weyco's Takeover of MB Could Impact Softwood Lumber Dispute

The balance of the Canada-U.S. softwood lumber trade dispute could be tipped in either direction with Weyerhaeuser's acquisition of MacMillan Bloedel (see related article) , some industry analysts believe. The deal "weds a coastal forest company chafing under the current softwood agreement to an American firm whose holdings in British Columbia's Interior benefit under that same trade arrangement," according to a recent report in the Vancouver Sun.

"We have been aggressively neutral in the softwood lumber agreement," Steven Rogel, Weyerhaeuser's chief executive, told a news conference announcing the takeover. "We will have to re-evaluate that position."

The takeover signals the end of British Columbia's forest companies being viewed as a poor investment, MacMillan Bloedel president Tom Stephens emphasized. Because of the deal he helped broker, Stephens stands to get more than $13 million under buyout and stock options clauses in his contract, the Vancouver Sun reported .

Rogel, who estimated cost savings through the merger will be in the neighborhood of $150 million, said he expects there will be few operational changes or closures because the two companies fit together well. MacMillan Bloedel had gone through a major downsizing one year ago and is now considered one of the lower-cost producers on the British Columbia.

The provincial government is also reportedly supportive of the merger/acquisition, as is IWA-Canada, the largest woodworkers' union in Canada.. However, some environmental groups expressed concern about Rogel's reluctance to state a clear position on an earlier agreement by MacMillan Bloedel to phase out clear cutting.

By tying part of its fortunes to the industry on the British Columbia coast, Weyerhaeuser will be under tremendous pressure to take a stand in the ongoing trade war, economist Doug Smyth, director of research for IWA-Canada, stated in the newspaper report. Last year, Weyerhaeuser, the world's largest producer of softwood lumber and market pulp, produced more than two-thirds of its lumber in the U.S.

With the acquisition of MacMillan Bloedel, its production in Canada will increase to 42.7% from 31.8%, Smyth said. Negotiations about the future of the softwood lumber treaty, which expires March 31, 2001, have been undermined by strong division within the British Columbia forest industry about what position Canada should take. In addition, a spate of challenges by U.S. interests to the existing agreement have heightened concerns in British Columbia.

The softwood lumber agreement generally favors large British Columbia Interior producers, which the Vancouver Sun says holds 70% of the province's quota to ship lumber into the U.S. market.

The president of the B.C. Council of Forest Industries said Weyerhaeuser's next step is unpredictable. "Weyerhaeuser has got a foot in both countries, in both markets," Ron MacDonald was quoted in the newspaper report. "It depends on how they view the asset that they have just acquired from MacMillan Bloedel."

Last March, an Oregon-based forestry company with operations in British Columbia announced it was suing the Canadian government, claiming Ottawa discriminates against the province under the Canada-U.S. softwood lumber agreement, according to the Vancouver Sun.