Weyerhaeuser: Worth More Carved Up?

The market lacked direction May 4, but that didn't stop Weyerhaeuser (WY) stock from shooting up 5.7% to close at $82.62. It's not the financial performance of the big forest products company that's driving the shares. Weyerhaeuser reported weak earnings, mainly due to the recession in housing. No, investors are betting the lumber company will be carved up and will be worth much more as a sum of its parts than as one tree.

Weyerhaeuser management announced May 4 that it is considering a sale of its containerboard, packaging and recycling unit. The company recently spun off its fine paper business but retains part ownership. And Wall Street is pressuring the company to create a real-estate investment trust from its six million acres of timberland. Forming a REIT would reduce Weyerhaeuser's taxes and presumably offer a more enticing dividend yield to investors.

Russell Croft, co-manager of Croft-Leominster Value (CLVFX), notes that Weyerhaeuser is just about the last remaining public owner of timberland assets that has not announced plans to separate the ownership of timber assets from that of paper and pulp and other operations. If management does hoist a buzz-saw and cut the corporation into parts, what's it worth?

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Croft, who holds Weyerhaeuser shares, thinks the timberland alone could easily be worth $12 billion. Add the branches of business such as containerboard, homebuilding, wood products and the value of wood-cutting rights, and he gets to a roughly $30 billion break-up value for Weyerhaeuser. Deduct debt, and he figures the company's worth $100 to $110 a share -- a 20% to 32% premium to its closing price May 4.