Weyerhaeuser Company (WY), Brookfield Asset Management Inc. (USA) (BAM): How This Company Is Aiming Big With a $2.6 Billion Deal

Weyerhaeuser has also indicated that it intends to spin off its Wreco subsidiary in a deal that could create additional value for its shareholders. Since Wreco took in at least $1 billion in revenues in 2012, this would not be an insignificant development. As an indirect result of this transaction, Weyerhaeuser expects to be able to increase its quarterly dividend by 10 percent.

How Longview Stacks Up

Longview’s land portfolio includes hundreds of thousands of acres of prime timberland parcels in the Cascade Range. This land has been well managed and much of it is ready for harvest. Compared to Weyerhaeuser’s other holdings in the Great Lakes and Northern Tier regions, Longview’s portfolio may well contain a higher density of mature, marketable timber that can be used in residential construction applications. As such, Weyerhaeuser’s management team does not seem to be troubled by its steep price tag.

Potential Synergies, Savings and Long-Term Outlook

Many market-watchers believe that the Longview purchase will enable Weyerhaeuser to ramp up its exports to timber-starved Japan in relatively short order. After the purchase, roughly one-third of Weyerhaeuser’s portfolio will consist of Pacific Northwest timberland. Since it is less expensive to ship raw or processed timber to Tokyo from Seattle than from Minneapolis or New York, this is a significant development. As a direct result, Weyerhaeuser expects to realize at least $20 million in annual cost savings and synergies from this deal.

In sum, this transaction offers concrete benefits for both companies. Although Weyerhaeuser’s shareholders may be disappointed by its secondary offering, the temporary weakness that it engenders could produce an exciting buy-in point for longer-term shareholders. What’s more, the potential Wreco spin-off is sure to provide an additional reason to stay engaged with the stock. However, it is crucial that investors research the terms of the Longview deal on their own before committing to a position.

The article How This Company Is Aiming Big With a $2.6 Billion Deal originally appeared on Fool.com and is written by Mike Thiessen.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.