Spokane Journal of Business

Potlatch declined invitation to relocate from Spokane

Merged company to be eighth largest U.S. timber concern

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During Potlatch Corp.’s merger talks with Arkansas-based Deltic Timber Corp., Deltic invited the Spokane-based company “with open arms” to relocate to the Natural State, CEO Mike Covey says.

Ultimately, Potlatch declined the offer.

“When it came down to it, the quality of life in Spokane is what we’re committed to,” Covey says. “That made it an easy decision for us to stay here.”

Covey is hopeful that, pending approval from the U.S. Securities and Exchange Commission, PotlatchDeltic Corp. will officially form during the first quarter of 2018.

If approved, Covey says the company will trade under the ticker symbol PCH on the Nasdaq stock market.

The merger would make PotlatchDeltic the eighth-largest timber company in the U.S. Potlatch currently is the 10th- to 12th-largest timber company in the country, Covey says.

After news of the announced merger, Moody’s Investor Services called the merger “credit positive.”

“Moody’s views the deal as strategically sound given the complementary businesses and because Deltic’s mature timberland, coupled with a strengthening demand for logs and expected realizable synergies, will immediately generate cash flow, enabling Potlatch’s leverage to return to current levels in about 12 months after an initial increase,” the investors services company said on Oct. 24.

Covey, chairman and CEO, and Eric Cremers, president and chief operating officer, will remain in their respective positions after the merger. John Enlow, president and CEO of Deltic, will become vice chairman of the new company. The board of directors for PotlatchDeltic will consist of eight directors from Potlatch and four from Deltic, Covey says.

Factoring in recent stock prices and net debt for the two companies, PotlatchDeltic is projected to have a market capitalization of more than $3 billion and enterprise value of more than $4 billion. The combined company will have 1,500 employees with more than 200 customers.

Potlatch’s current corporate offices, on the 15th and 16th floors of the Wells Fargo Center, at 601 W. First in downtown Spokane, also will serve as PotlatchDeltic’s corporate office of 65 employees. The two floors combine for a total of 22,000 square feet of space. 

Deltic Timber is an industry competitor to Potlatch, so the companies are familiar to each other, he says.

“Quite honestly, we’ve had our eye on an acquisition or a merger for some time now,” Covey says. “But last year, the retirement of their CEO prompted the discussions between us, and we worked to a point of agreement for this to happen.”

With land holdings in Alabama, Arkansas, Louisiana, and Mississippi already, Potlatch gains an even larger footprint as it acquires more property in the South. Potlatch also owns 600,000 acres of timberland in Idaho and is that state’s largest private landowner.

Potlatch also owns land in Minnesota and currently has about 1.4 million acres of timberland in six states.

As a combined force, PotlatchDeltic will own 2 million acres of land, of which, 1.1 million acres are in the South.

The merged company also will own eight wood products manufacturing facilities consisting of six lumber manufacturing operations, one industrial plywood mill, and one fiberboard facility. More than half the company’s lumber will be produced at its three southern U.S. mills.

With Dallas just a 4 1/2-hour drive from Deltic’s headquarters, Covey says Potlatch has its eyes on the merged company being able to supply construction materials for the new housing starts in Texas.

“Timber prices have lagged, but we see lumber starting to move higher due to housing starts,” Covey says. “While there’s an oversupply of trees in the South, we see upside potential out of lumber eventually.”

With the merger, Potlatch, which operates as a real estate investment trust, will enable Deltic’s operations to see significant tax saving on its timber harvest earnings.

REITs own or finance income-producing real estate in a number of property sectors.

Following news of the proposed merger, Potlatch’s dividend rose to $1.60 a share from $1.50 a share, Covey says.

PotlatchDeltic anticipates having to hire more employees next year once federal regulators sign off on the deal.

“We’ll add more jobs because we’ll be expanding output. Just how many new employees we’ll need right now is undetermined, but we’ll need more people in administration including accounting, financial, tax, and legal,” Covey says.

“We have low levels of debt, actively invest in our assets, and reinvest in our capital,” he says. “We got through the Great Recession without laying off a lot of people. We’ll be ready.”

Potlatch employees, Covey says, are glad to be staying in Spokane.

“These are good-paying jobs with full benefits in a place that offers a high quality of life at an affordable cost,” he says.

“And we’re deeply invested in Spokane,” he says, noting that for 10-straight years, Potlatch employees have led Spokane County in giving to the United Way’s annual campaign fund, with 100 percent participation.

Covey says Potlatch also is primed for the future from an environmental standpoint. PotlatchDeltic will remain committed to obtaining third-party auditing and certification of its practices under the strict standards of the Sustainable Forestry Initiative and the Forest Stewardship Council, he says.

“We manage our timber resources mindful of the long-term impacts on the forest and on the communities nearby,” he says. “We want to be around 100 years from now.”

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