WY Disposes of Cosmopolis - Analyst Blog

Weyerhaeuser Co. (WY) announced the sale of its high purity cellulose mill, Cosmopolis to the Gores Group LLC, for an undisclosed amount. The Group is led by an investor group including Dermot Smurfit, a paper and packaging industry veteran.

The mill, closed in October 2005, will commence operation as Cosmo Specialty Fibers Inc. going forward, and will be completely refurbished by the Gores Group. Cosmo Specialty Fibers Inc's chairman anticipates that demand for the mill's primary products viscose and acetate would accelerate in the years to come.

Weyerhaeuser is one of the leading U.S. forest product companies, primarily engaged in growing and harvesting timber. The company manufactures, distributes, and sells forest products; and is also involved in real estate development and construction.

Recently, the company took a major step forward to convert into a real estate investment trust (REIT). It completed its special dividend distribution of $5.6 billion, comprising $560 million cash and 324 million common shares. Post distribution, Weyerhaeuser's shares outstanding is expected to reach 536 million levels.

The REIT structure will help the company reduce its tax liabilities due to lower taxes on REIT, qualifying timberlands income and increased competitiveness in managing its timber portfolio. Reversal of certain tax liabilities will benefit its third quarter 2010 financial results by $1 billion.

Weyerhaeuser faces stiff competition from International Paper Co. (IP), Louisiana-Pacific Corp. (LPX), and Canfor Corporation; while the industry's sensitiveness to macroeconomic conditions remains a cause of concern. We are currently maintaining a Neutral recommendation on Weyerhaeuser, which is supported by Zacks # 3(Hold) Rank.