MeadWestvaco to Sell U.S. Forestlands to Plum Creek for $1.1 Billion
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"This transaction delivers on all of our objectives—it enables us to maximize the value of our land holdings in a tax-efficient manner, while retaining the substantial upside potential of the attractive real estate opportunities in the growing Charleston market. At the same time, we are maintaining a secure source of fiber for our mills," said John A. Luke Jr., chairman and CEO, MWV. "Plum Creek is an outstanding company that shares our commitment to both sustainably managing forests and forging lasting community partnerships in real estate development. As a strong company with deep expertise in land management and development, Plum Creek is the ideal partner for MWV as we move forward with the high-return real estate entitlement and community development opportunities we have in Charleston."
Under terms of the agreement, Plum Creek will acquire all of MWV’s U.S. forestlands and certain related assets, comprising approximately 501,000 acres in Alabama, Georgia, South Carolina, Virginia, and West Virginia, for $934 million, of which approximately $74 million will be in cash and $860 million will be in the form of a 10-year installment note from Plum Creek that MWV intends to securitize or otherwise finance after closing. Also included in the transaction is the royalty and lease income currently being generated on these lands from coal and wind.
MWV will retain full ownership of its oil and natural gas rights on approximately 191,000 acres of land in West Virginia that are located over the Marcellus Shale fairway.
As part of the transaction, MWV and Plum Creek will execute 25-year fiber supply agreements covering forestlands in Virginia and West Virginia to ensure an uninterrupted supply of high-quality fiber to MWV’s Covington, Va., paperboard mill. The fiber will be sold at market price, and the forestlands will continue to be managed and third-party certified under the requirements of the Sustainable Forestry Initiative (SFI) standard.
In addition to the U.S. forestland acquisition, Plum Creek will invest in a newly formed partnership comprised of MWV’s approximately 109,000 acres of diversified development lands in the Charleston, S.C., region. Plum Creek will acquire, for approximately $152 million in cash, an ownership interest in the partnership, placing an implied value of the partnership at approximately $530 million.
The partnership will consist of two joint ventures. The first joint venture (Joint Venture 1) will contain active development projects. Plum Creek will contribute approximately $12.5 million in cash into this joint venture. MWV will hold a 95% interest in the venture, and Plum Creek will hold the remaining 5% interest. The other joint venture (Joint Venture 2) will contain long-term development projects. Plum Creek will contribute approximately $140 million in cash into this joint venture, and MWV and Plum Creek will each hold a 50% interest in the venture.
MWV’s Community Development & Land Management (CDLM) business will lead the joint ventures’ activities across all development projects, and will be the managing partner. Kenneth T. Seeger, president of CDLM, will continue in his current leadership role of this business. MWV will consolidate and report the new partnership through the current CDLM segment.
The transaction has been approved by the boards of directors of both companies and is anticipated to close by the end of the year, subject to customary closing conditions. The transaction does not require a shareholder vote for either MWV or Plum Creek.
Upon closing, MWV will no longer own forestland assets in the U.S. MWV will continue to own and manage approximately 135,000 acres of forestland in the state of Santa Catarina, Brazil. MWV intends to retain these forestlands to serve its recently expanded virgin kraftliner operation in Brazil.
MWV intends to return most of the proceeds obtained in the transaction to its shareholders. The company estimates that net proceeds will be $950 million, after monetization of the installment note and payment of taxes and fees. Approximately $210 million will be used to repay an outstanding term to maintain MWV’s investment grade rating. In addition, approximately $75 million will be retained in the joint ventures to fund development activities. Upon closing, or shortly thereafter, MWV will determine the optimal form of returning the remaining proceeds to shareholders.
The company expects to maintain its current quarterly dividend rate of $0.25 per share.
