Louisiana Pacific will sell plants, timberland
Downsizing nationally to 'core' product line

Editor and Publisher

After continuing operating losses mounting into the multi-millions during the past five years, Portland, Oregon-based Louisiana-Pacific Corporation in May announced it is selling its operations in Louisiana and Texas as part of a world-wide downsizing, cutting its work force and plant capacity by nearly half to reduce debt and concentrate on its profitable core product lines.

In its North American operations, LP proposes to sell all of its 935,000 acres of timberlands, to close or sell about half of its 60-plus manufacturing plants, and reduce work force from about 9,700 down to about 5,300. The company expects to realize up to $700 million from sale of assets, to apply to debt and working capital for remaining core operations.

In North Louisiana, mill operations at Urania and Logansport are on the block for sale, along with about 190,000 acres of timber lands in Allen, LaSalle, and Winn Parishes. Wayne Dugan, LP media spokesman based in Portland, confirmed to The Piney Woods Journal on May 31 that the company is "far along" in negotitions to sell about 65,000 acres of timber lands in Winn and LaSalle parishes.

Other sources told The Journal they understand definitive agreements to buy and sell about 65,000 acres in Winn and LaSalle parishes, have been executed by a group of investors based in Arkansas. Identity of the purchasers, and terms of the sale were not revealed. Assuming a per-acre value similar to that of the 8,377 acres pledged by LP on a 1999 bond-issue loan from the State of Louisiana, sale of the 65,000 acres could come in at as much as $89 million.

When its downsizing plan is complete, Louisiana Pacific will no longer maintain any presence in Louisiana. While Texas timber lands will be sold, the company's Texas manufacturing operations and its regional administrative offices in Conroe will continue, Dugan said. LP's Le Groupe Forex OSB manufacturing facilities in Canada will also continue to operate. One lumber mill in Canada will be closed.

LP's exit from the operations in Louisiana - including the storied 100-year-old former Urania Lumber Company in LaSalle Parish, will close a chapter which began a little over three years ago when the company announced, then reversed plans to close the Urania plywood plant.

In a public statement in November, 1998, LP said a "temporary" shutdown of the Urania plant was part of its "ongoing assessment of its core businesses and their potential for growth and competitiveness." The plant was in fact scheduled for permanent closure, and the future of its Logansport facility, on the Louisiana-Texas border in DeSoto Parish south of Shreveport, was also on the line.

To save approximately 600 jobs at the plants at Urania and Logansport, Louisiana public officials engaged LP management, and negotiated a finance package in which LP agreed to upgrade the plants, continue operations, and maintain the 600 jobs at the two plant locations.

Louisiana Commissioner of Agriculture Bob Odom, who made at least one trip to Portland in late 1998 to lobby LP officials to save the manufacturing jobs, told The Piney Woods Journal that the company mortgaged timber land in Winn Parish in pledge of a loan of $8.68 million, obtained from a public bond issue through the Louisiana Agricultural Finance Authority, an arm of the Department of Agriculture and Forestry which Odom heads. In return for the loan, LP agreed to secure the 600 jobs during the five-year financing term, and upgrade the plants.

In January, 1999, LP announced it would continue operations at Urania, believing that the plant would "now be able to achieve greater operating efficiencies." In addition to securing the $8.68 million loan, Louisiana also provided tax relief, and employee training programs.

The five-year loan agreement with LP still has two years to run, Odom said, and "Whoever buys the plant will have to honor that."

Odom said LP officials have been in regular touch with his office in Baton Rouge to make sure the company is in compliance with the agreements.

Frank Millican, director of the Agricultural Finance Authority, told The Piney Woods Journal the timber land mortgaged to the State consists of 8,377 acres in several contiguous tracts located in Township 11 N, Range 1W and 1E, in Winn Parish. The land with standing timber is valued at $11.5 million, Millican said.

Winn Parish Tax Assessor Bodie Little said the land description places it in the eastern half of the Parish, approximately from Colgrade community along U.S. Highway 84 to the Winn-LaSalle parish line.

Millican said he understands that the 8,377 pledged acres are not being sold, but that approximately 96,000 acres in the area, not a part of the loan pledge, are on the market.

LP officially announced last month that production was proceeding on a "business as usual" basis in anticipation of a sale to new owners who would continue operating the plants at Urania. Other sources told The Journal the mill was scheduled for shut-down early in 2003. These reports are unofficial and unconfirmed, and specifically at odds with statements issued by LP, but community leaders in Urania remain apprehensive at the potential for loss of the major economic base. (See separate story, Page 2).

LP's David Dugan told The Journal that the company has "identified several potential buyers" for the Urania and Logansport plants, and has already had some inquiries. He clarified that "potential buyers" are companies in the industry whose operations would be a logical fit with the Louisiana plants' capabilities - not necessarily companies who have inquired or expressed interest.

Company wide, the downsizing will include the sale of a total of 935,000 acres of timber lands nationally, along with manufacturing plants making plywood, industrial panels, and lumber. The company expects to realize $600 to $700 million in net proceeds, which will be applied to debt reduction, and to continue in business specializing in wood products where it is an industry leader.

Following the divestitures, LP expects to operate 30-35 mills in North America and employ a work force of approximately 5,300 compared to its current portfolio of 60 mills and a workforce of 9,700. Once targeted debt levels have been achieved, capital will be available to grow the more profitable product lines that it retains, the company said.

LP anticipates that the majority of the sales will be completed within 12 to 18 months. Following the divestitures, the company will focus on businesses where the company has strong competitive position and where opportunities exist for profitable improvement. These core businesses will include oriented strand board (OSB); composite wood products (specialty OSB, SmartSystem (R) siding and hardboard siding); engineered wood products; and plastic building products (vinyl siding, composite decking and mouldings).

In 2001, the four businesses to be retained under this plan had revenues of $1.4 billion and generated an operating profit of $46 million. Further, earnings before interest, taxes, depreciation, depletion and amortization (EBITDA) for the retained businesses were $172 million.

The company's major product will continue to be OSB, where LP is the world's leading producer. The company expects OSB to continue its strong growth rate as OSB takes market share from plywood. In addition, new specialty OSB applications, particularly in the industrial and transportation segments, are expected to grow rapidly as they gain market acceptance.

The company will also retain its engineered wood products business, which is growing and has proven to be an important link to top builders and their key suppliers, LP reports. The plastic businesses, including vinyl siding, moulding and decking, are focused primarily at retail and specialty distribution.

The most significant assets to be divested are LP's 935,000 acres of timberlands in Texas, Louisiana and Idaho, and its lumber business which produces 1.4 billion board feet annually and holds the number-one position in stud lumber in North America. "Our timberlands are very valuable properties. However, given that we primarily buy pulp wood on the open market and that there are more tax-efficient ownership vehicles for this asset, we have made the decision to sell them," noted Suwyn.

The company will also divest its plywood, industrial panels, wholesale and distribution businesses.

Consistent with its North American sell-down, in May LP also sold its 65% ownership in Louisiana-Pacific Coilite Ireland, LTD. Coilite, the state-owned forestry company in Ireland which owned 35% of the joint venture, purchased LP's majority share for an undisclosed sum. The company operates an OSB mill in Ireland, and has sales operations in the UK, Ireland, and Holland. A company spokesman said, "We have not found expansion in Europe to be attractive for us, so we have taken this step."

In September 1999, LP outbid Boise Cascade to acquire the Canadian OSB manufacturer Le Groupe Forex for $512 million, plus assumption of debt. Both before and since, the company has made moves to balance its product lines with market demands, closing and curtailing operations at a number of North American plants.

Earlier, in October, 1997, LP had announced a plan to sell non-strategic assets worth more than $1 billion, to "focus on growing and improving its core businesses." In the same announcement, the company reported losses after 1997 write-downs of assets intended to be sold in the restructuring plan, bringing that period's total recorded losses to $81 million, compared to a loss of $186 million for the first nine months of 1996.

Louisiana-Pacific Corporation was created 29 years ago when the Federal Trade Commission ordered Georgia-Pacific to divest 20 percent of its then rapidly growing company.

LP's financial performance during the recent past makes the major downsizing a predictable move. For the first quarter of 2001, the company lost $71 million, or 69 cents per share. That followed on the heels of a $105 million loss for the full year 2001.

In November 2001, the company completed a major refinancing of its outstanding debt, with a $200 million seven-year loan packaged by Bank of America, with participations by Wachovia Bank, Royal Bank of Canada, the Bank of Nova Scotia, and Export Development Bank of Canada.