Potlatch to spin off pulp and paper business

SPOKANE, Wash. — The board of directors for Potlatch has approved a plan to create a spinoff company called Clearwater Paper to separate the forest product company's pulp and paper business from its timber holdings.

The company announced the approval Monday following a ruling by the Internal Revenue Service that shares in the new company will qualify as a tax-free distribution to Potlatch and its shareholders for federal income tax purposes.

Potlatch, based in Spokane, is Idaho's largest private landowner. Including holdings in Arkansas, Minnesota and Wisconsin, it owns about 1.7 million acres of timber land.

Clearwater Paper will be based in Spokane and will produce pulp, paperboard and tissue products. Besides making pulp and paperboard at the existing Potlatch plant in Lewiston, Idaho, it will have facilities in Las Vegas, Nev., Elwood, Ill., and near McGehee, Ark. The company will employ about 2,400 people nationwide, according to a Potlatch statement.

Potlatch will distribute one share of Clearwater stock for every 3.5 shares of Potlatch stock on Dec. 16 to shareholders of record on Dec. 9. There are about 39.5 million shares of Potlatch stock outstanding.

Potlatch stock closed at $24.27 today, up $3.49 or 16.8 percent.

Clearwater Paper common stock is expected to begin regular trading on the New York Stock Exchange on Dec. 17.

"We believe that separating these businesses will present both companies with more opportunities to maximize their potential as independent entities, while affording each business the flexibility to be more responsive to changing industry and economic dynamics," Michael J. Covey, chairman, president and chief executive officer of Potlatch, said in the statement.

As part of the deal, Clearwater Paper will begin with about $150 million in debt. About $100 million, according to the news release, is from debt previously created by an affiliate of Potlatch that is due in full in December 2009.

Clearwater Paper plans to immediately draw $50 million from an anticipated $125 million revolving credit line and transfer that amount to a subsidiary of Potlatch.

The company said Gordon Jones, the former chief executive officer of Blue Ridge Paper Products in Asheville, N.C., will be president and chief executive officer of Clearwater Paper.

"There are many benefits to operating Clearwater Paper as a stand-alone company and we expect the spinoff to provide increased opportunities for investors, employees and customers over the long-term," Jones said in statement.