Over the weekend Brookfield Asset Management Inc. (USA) (NYSE:BAM) announced that it and its affiliate Brookfield Infrastructure Partners L.P. (NYSE:BIP) are selling the Longview Timber business to Weyerhaeuser Company (NYSE:WY) for $2.65 billion. The deal consisted of 645,000 acres of high-quality timberlands in the Pacific Northwest. While these timber assets are located in the U.S., as you will see this deal is all about China.
Before we get to that, let’s take a look at what Brookfield Asset Management Inc. (USA) (NYSE:BAM) is selling. Longview Timber was originally picked up by the company in 2007 along with associated paper and packaging manufacturing assets. At the time, Longview was struggling as the economy began to turn and Brookfield Asset Management Inc. (USA) (NYSE:BAM) was able to restructure the business by separating the timberland assets from the manufacturing business and then turnaround the operations of the manufacturing assets. Incidentally, Brookfield Asset Management Inc. (USA) (NYSE:BAM) sold those paper and packaging assets in a separate deal over the weekend for $1.025 billion.
Brookfield Asset Management Inc. (USA) (NYSE:BAM) has a history of acquiring complex assets, unlocking value and then generating exceptional returns for investors. In this case Brookfield Asset Management Inc. (USA) (NYSE:BAM) is selling timber assets at a time when timber assets are hot. For perspective, Brookfield paid an estimated $3,150 per acre for the Longview Fibre timberlands in 2007 and was able to sell them for about $4,100 an acre which is at the high end of the market.
For a Brookfield Asset Management investors this deal is just another example of the company’s ability to follow the advice of Warren Buffett to “be fearful when others are greedy and be greedy when others are fearful.” That has enabled the company produce returns of more than 370% over the past decade while the S&P 500 has just returned 65%.
Part of its success has been in spinning off pure-play businesses like Brookfield Infrastructure Partners L.P. (NYSE:BIP) which gives it a great partner for deal-making. Brookfield was able to park a portion of the timberland assets in Brookfield Infrastructure until the assets were ready to be harvested. So, while this deal marks the exit of timberland assets from the Brookfield Infrastructure portfolio, it enables the company to reinvest the deal proceeds into assets generating higher rates of return. Lately, this has included toll roads in South America, Australian rail and port infrastructure, as well as utility assets around the world. The timber business was never a perfect fit for its more regulated business mix, which is why it was of more value to the company to sell to a strategic buyer.