Timber giants plan merger.

Byline: JOE HARWOOD The Register-Guard

PORTLAND - After 14 months of fighting the stock market equivalent of trench warfare, Willamette Industries Inc. on Monday raised the white flag and agreed to be purchased by industry giant Weyerhaeuser Co.

The effects the combination will have on employees of the lumber and paper companies won't be known for months. But Weyerhaeuser has said it plans to cut annual operating costs by $300 million within three years of acquiring Willamette.

Such consolidations frequently result in the elimination of overlapping operations, layoffs and asset sales. Both companies operate numerous facilities in Lane County. For example, they both have engineered wood products mills and lumber mills in Lane County.

Willamette CEO Duane McDougall has said he feared Willamette workers in Oregon and elsewhere would lose their jobs if Weyerhaeuser succeeded in the takeover.

"There would be significant impacts in the communities where we have operations," McDougall told The Register-Guard last year.

Weyerhaeuser spokesman Bruce Amundson on Monday declined to speculate on closures or layoffs resulting from the combination.

Following a flurry of phone calls between the two companies over the weekend and into Monday, Weyer- haeuser agreed to pay $55.50 a share for Willamette - 50 cents more than an offer Willamette had called inadequate three weeks earlier.

Weyerhaeuser's weekend decision to increase its hostile takeover offer by $55 million makes the deal worth $7.78 billion. Weyerhaeuser will pay $6.1 billion in cash for the stock and assume $1.65 billion in Willamette debt.

Willamette spokeswoman Jackie Lang said the Portland-based company's board still must vote on the deal. The board will meet before the end of the month, she said.

The company also on Monday announced it had ceased negotiations to buy Georgia-Pacific Corp.'s financially troubled building products division. Weyerhaeuser CEO Steve Rogel had warned that a Willamette deal with Georgia-Pacific would end Weyerhaeuser's hostile takeover bid.

Rogel left the helm of Willamette in 1997 to join Weyerhaeuser. Willamette Chairman and former CEO Bill Swindells had groomed Rogel to be his replacement.

Rogel's push to buy Willamette is part of the forest products industry's drive for consolidation. Executives of the largest companies hope that by consolidating the highly fragmented industry, they can better control production to match demand, and thereby increase profits.

Rogel wants to grow Weyerhaeuser through acquisitions in order to keep up with its larger rivals, International Paper Co. and Georgia-Pacific. Willamette's plants in the United States and Canada are among the most profitable and efficient in the industry.

Willamette officials on Monday were vague as to the reasons the fiercely independent Portland-based company decided to throw in the towel after repeatedly rejecting Weyerhaeuser's overtures.

"A thorough review of our options the last few days points to this as the best course," Lang said.

"We've always been clear in our focus on shareholder value," she said. "At this point, the Weyerhaeuser offer appears to be the best option for Willamette shareholders."

Those shareholders have become increasingly restive over the past six months as Willamette continued to rebuff Weyerhaeuser.

Lawsuits by shareholders in federal and state courts sought to prevent Willamette from buying Georgia-Pacific's building products division and also accused Willamette's board of acting contrary to the interests of shareholders.

Yet, Willamette's "Just Say No Wey" campaign forced Weyerhaeuser to increase its offer by $825.1 million between November 2000, when Weyerhaeuser launched the hostile takeover bid, and Monday. The Federal Way, Wash.-company initially offered $48 a share, then increased that offer to $50 before raising it again and saying $55 a share was its final offer.

As of last week, Willamette shareholders had pledged 64 percent of the company's outstanding shares to Weyerhaeuser.

Lang said shareholders' lawsuits did not play a role in Willamette's decision to sell.

Willamette told its employees of the tentative deal Monday afternoon.

"It's certainly unsettling," Lang said. "Most of us were hoping this day would never come."

In Oregon, there is some overlap between the two companies. Trus Joist MacMillan, owned by Weyerhaeuser, operates engineered wood products plants in west Eugene and Junction City. Willamette, meanwhile, has a laminated beam plant in Vaughn, 25 miles southwest of Eugene.

Willamette operates sawmills in Coburg, Lebanon, Dallas and Warrenton. Weyerhaeuser has a sawmill in Cottage Grove.

Some industry officials have speculated that Weyerhaeuser may sell off Willamette's plywood and panel mills. Weyerhaeuser has sold off or closed all of its structural panel plants on the West Coast and has exited the particleboard market altogether.

Willamette operates plywood mills in Springfield and Sweet Home and a fiberboard plant in west Eugene.

Most in the industry expect Weyerhaeuser to get rid of many of the 420 workers at Willamette's Portland headquarters.

But some of Willamette's top officers - if they are shown the door - won't go away penniless.

Willamette's board in late 2000 approved a series of "golden parachute" severance plans for executives.

Under the plan, if Weyerhaeuser fires 65 top Willamette managers within 36 months of its acquisition, Weyerhaeuser would have to shell out a total of $43 million in severance to those people.

If McDougall gets the ax in that time frame, he would receive $2.6 million.

However, Weyerhaeuser could insist that Willamette rewrite or remove the severance plans as part of the acquisition.

Contact Joe Harwood at 338-2364 or [e-mail].