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Koch Industries to Buy Georgia-Pacific

A $13-billion deal to acquire the paper giant would create the largest private U.S. company.

November 14, 2005|From Associated Press

Georgia-Pacific Corp., the maker of Brawny paper towels and Angel Soft tissue, said Sunday that it had agreed to be acquired for more than $13 billion in cash by Koch Industries Inc. in a deal that would create the nation's largest private company.

The agreement also calls for Koch to assume $7.8 billion in Georgia-Pacific debt. The terms value Atlanta-based Georgia-Pacific's stock at $48 a share, a 39% premium over its closing price Friday of $34.65.

Koch, a commodity conglomerate based in Wichita, Kan., operates petroleum refineries and pipelines, trades commodities, and manufactures pulp, paper and fibers. With annual revenue of $60 billion, it is behind only food supplier Cargill Inc. as the nation's largest private company. Koch, which employs more than 30,000 people, will become the largest in terms of revenue if it acquires Georgia-Pacific.

Besides Brawny, Georgia-Pacific's brands include Dixie paper cups and Quilted Northern bath tissue.

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. Chairman and CEO Charles G. Koch and his brother, David, a Koch director and executive vice president, are each worth $4.5 billion, according to Forbes magazine's 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, a nylon fiber business, from DuPont Co.

Koch acquired two pulp mills from Georgia-Pacific in May 2004, a deal that executives of both companies said Sunday provided an introduction and prompted further discussions.

"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 an interview.

Georgia-Pacific's chief executive, A.D. "Pete" Correll, who faces 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 of Georgia-Pacific.

In an interview, Correll said that talks on the current deal began in earnest last month and that operating as a private company would 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," Correll said.

Operating as a private concern also would 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 would not miss quarterly earnings conference calls with analysts, mandatory reporting requirements under the federal Sarbanes-Oxley corporate reform law "and 47 other" regulatory requirements.

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