Koch Buys Georgia-Pacific
(The Associated Press contributed to this report.)
By early next year some 525 employees of Georgia-Pacific’s Monticello plants will be working for a new owner. But they won’t notice anything different, at least not for a while.
That’s the word to employees here and elsewhere in the wake of a startling announcement that Georgia Pacific, Inc., is to be sold to Koch Industries, Inc., of Wichita, Kansas, in a $21 billion deal. Georgia-Pacific will continue to operate as an Atlanta-based subsidiary of Koch, which will become the largest privately held company in the U.S., according to identical news releases by the two companies.
In Monticello, G-P plywood plant manager Leonard “Nick” Nicoletta said local management knew little more about the ownership change than had been reported in news media. He was not familiar with Koch before the surprise announcement, he said. A broadcast Monday to employees at G-P locations over the country essentially “told us to keep doing what we’re doing,” Mr. Nicoletta said.
The plywood plant, largest of the three here, is currently running at 100 percent, fueled by demand for rebuilding storm ravaged areas. Hourly employment is 324 workers, the plant manager said, with another 28 employed in management positions. The medium density fiberboard plant employs 110-115, and another 60 or so work at the local stud mill. Additionally, the company’s timber division operates here.
The broadcast to employees said no job cuts were planned, according to news accounts of interviews with employees. The regulatory filing Monday reportedly promised “good faith efforts” to generally keep employee compensation and benefits at current levels.
One group likely to be pleased with the buyout is G-P shareholders. Koch Forest Products, the entity actually executing the purchase, is offering $48 a share for G-P stock, a healthy increase over the $$34.65 closing price last Friday. The price is close to the $50 all-time high for G-P s highly volatile stock.
Among those “stunned” when Koch’s unsolicited offer came in last week was G-P chairman and chief executive A.D. “Pete” Correll, according to The Atlanta Journal-Constitution. Mr. Correll reportedly met executives of Koch last year when that company bought G-P plants in Brunswick and in New Augusta, Miss. Executives of both companies said Sunday that deal provided an introduction and prompted ongoing discussions.
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“From the investment we made in Koch Cellulose, that really got us very interested in the entire forest products sector,” Joe W. Moeller, Koch’s president and chief operating officer, said in a telephone interview. “We see this really as a natural extension for our company and a great platform for growth.”
Koch is a commodities conglomerate that operates refineries and pipelines, trades commodities and manufactures pulp, paper and fibers. With combined annual revenue of some $80 billion from Georgia-Pacific, Koch would surpass food and farm products maker Cargill Inc. as the largest privately held company in the U.S. Koch employs more than 30,000 people.
Besides Brawny, Georgia-Pacific’s brands include Dixie paper cups and Quilted Northern bath tissue. The company’s Building Products Division, operator of the Monticello plants, produces building products such as plywood, lumber and gypsum wallboard. The deal marks the first major push into consumer products for Koch, which traces its history to 1927 when Fred C. Koch developed a new method to refine crude oil.
Today it operates in diverse fields from ranching to fertilizer to petroleum processing and asphalt. Chairman and CEO Charles G. Koch and his brother, David, a company board member and executive vice president, are both worth $4 billion, according to Forbes’ ranking of the world’s wealthiest people.
The proposed acquisition would be the largest in Koch’s history, coming about 18 months after it acquired Invista BV, a nylon fibers business that makes Lycra and Stainmaster, from DuPont Co.
Mr. Correll, who faced a mandatory retirement when he turns 65 next April, is expected to join Koch’s board and help with the transition. Koch plans to name a new CEO and president of Georgia-Pacific later.
In a telephone interview, Mr. Correll said talks on the current deal began in earnest last month and that operating as a private company will allow Georgia-Pacific to invest in areas—particularly its packaging and building products businesses—where it has not previously because of concerns Wall Street would not approve of such expenditures.
Had it undertaken such investments, “we feel that the prospects are very high that our share price would go down,” Mr. Correll said. Operating as a private concern also will allow Georgia-Pacific managers to “avoid the distraction of quarterly reports,” better weather the industry’s cyclical downturns and execute strategic decisions much faster, Correll said.
Correll joked that he also won’t miss quarterly earnings conference calls with analysts, mandatory reporting requirements under the federal Sarbanes-Oxley corporate reform law “and 47 other”‘ regulatory requirements.
Among Georgia-Pacific’s debts are asbestos liability claims that remain to be resolved for several more years. The company manufactured gypsum products with asbestos until 1977, and has had hundreds of thousands of claims filed against it over exposure to asbestos fibers, which are carcinogenic.
Georgia-Pacific paid about $200 million last year in asbestos liability claims, but says the number of claims has shrunk dramatically from 26,500 in 2004 to fewer than 8,000 so far this year. Koch will handle those liabilities in a similar fashion, Mr. Moeller said.