Questions Raised

British Columbia is two months into the post-MacMillan Bloedel era, still basking in the euphoria of the Weyerhaeuser takeover. Seldom has the disappearance of such an icon corporation been received with such apparent satisfaction, by the Glen Clark NDP government as much as anybody.

But now the questions that nobody was asking then have begun emerging. Not only will Weyerhaeuser be a new powerhouse in the Canadian industry, it will straddle the border, with all the implications for good or ill that may entail.

The first and most obvious question will be about Weyerhaeuser’s role, if any, in the growing controversy over soft- wood exports to the United States. Can Weyerhaeuser be a good Canadian and a good American citizen at the same time? Because of its size, the role it chooses to play will have an important, perhaps critical, influence on the out-come.

The advantages MB gives Weyerhaeuser are considerable. MB makes half of its $19.5 billion annual sales in the US and two-thirds of its asset value are in the US.

During American Tom Stephens’ two-year tenure as chief executive officer — now to be relinquished — MB has been a company like no other. He likes the aggressive tactics of the US Coalition for Fair Lumber Exports no better than anyone else. But his approach has been to work to change the way things are done in Canada.

A competitive bidding system for logs replacing administered prices through stumpage is his answer to the Coalition. His ultimate objective is a completely open log market. As head of a big BC company, Stephens can beat that drum without much embarrassment to the rest of the industry, even if his solution is not shared by many others.

The idea has no legs at the moment in BC because of a widespread fear that an open log market would lead to an end of the long-standing ban on raw log exports. It might also start an exodus of BC timber to the US as American companies join in the bidding by taking advantage of Canada’s low dollar.

The result of that might be upheaval for the local industry and huge disruptions in the forest communities.

The executive offices in Vancouver will be keen to hear Weyerhaeuser’s take on this particular issue. As a player that already has operations in BC, it is well aware of the complexities involved.

In its new bigger context, can it now operate in BC the same way it does in Washington State? Can it push for an open log market, as Stephens has, with-out hearing whispers of betrayal from the others opposed to the idea?

Doug Smyth, chief economist for the woodworkers’ union and regarded by the industry as one of the best in the business, adamantly opposes the open market concept or any radical change in forest tenure. Yet he believes Weyerhaeuser, as a bigger player in BC, can help change the culture of the softwood dispute.

Smyth says: "This could really help us if it rolls the right way. Weyerhaeuser have a lot more to defend up here than they did before."

But MB has also been trying to increase its private land reserve to get around the softwood export quota. It already has a lot of private forest holdings as well as its Crown tenures. To compensate for productive land lost to the province’s Protected Areas Strategy (parks) and aboriginal title claims, the cash-strapped NDP government is offering other land as alternative payment. MB has been negotiating to have any land so exchanged go into its private holdings.

If it could buy other private forests, say TimberWest’s on Vancouver Island, MB could eventually divest itself of its Crown tenures and cast itself as a 100 per cent private forester. Then it could claim exemption from the softwood quota and any American countervail. That way it would gain unrestricted access to the US market, as the Atlantic provinces have done.

Weyerhaeuser is already a huge producer from its own private holdings in the US and MB could be a good fit on that score. But Weyerhaeuser has its own Crown tenures in the Interior to consider. So which way will it jump on the quota issue?

Then there’s the whole question of Weyerhaeuser’s attitude to the environ-mental lobbies.

MB has been doing a bit of a love dance with the Sierra Club, Greenpeace and the friends of this or that watershed. Its pledge to end clearcutting on Crown land, particularly in the controversial Clayoquot Sound on Vancouver Island, has been loudly applauded as a victory for the environmental-ists. Whether the same pledge has been extended to private lands has never been made clear.

Although Weyerhaeuser was at first non-committal about the clearcutting ban, chief executive officer Steve Rogel subsequently has said his company has no intention of "turning back the clock to a period of polarized debate and confrontation".

Whether that’s a commitment the environmentalists think they can take to the bank remains to be seen.

In any event, MB is replacing clearcutting with so-called variable retention logging. It’s a system that not many in the industry are all that sure about. They say that if all it means is leaving more standing trees in reduced clearcut areas, that’s already been going on for some time in BC.

Rogel says Weyerhaeuser will need time to gain a fuller understanding of MB’s innovative practices. But the lobbies are alarmed and may not be ready to give him much time to respond. They worry that their progress with MB may now have to be renegotiated with Weyerhaeuser.

Most analysts certainly are still bullish on the new company’s future in Canada. But there’s some speculation about what it might do with MB’s assets.

Normally in a takeover of this magnitude there are a lot of shoes to drop and they don’t all drop at the same time.

BC has the highest quality timber in Canada and there’s no duplication between Weyerhaeuser’s and MB’s operations. But in BC’s regulatory environment the trees are difficult to get out. The Forest Practices Code has helped make logging costs the highest in the world.

Because its tradition-al markets have been primarily offshore, MB received a limited quota under the softwood deal. Its sales in the US could be further com-promised by the American Coalition’s attempt to have more product categories included in the deal.

But MB has attractive assets outside BC, in the US and else-where in Canada. It has, for instance, been planning a new oriented strand board (OSB) mill in the US. So a question in some boardrooms is whether and/or what assets Weyerhaeuser might want to unload.

Ross Hay-Roe of Equity Research Associates says Weyerhaeuser was initially interested in MB’s packaging business, which is mostly in the US.

"But the more they looked at it, the more they thought of buying the whole thing," he says. "Getting the trees out is a little different up here and I would sup-pose Weyerhaeuser would take a look at the BC assets. It’s likely they would not keep all the MB assets. That will probably lead to different conclusions about where the company wants to go."

Council of Forest Industries of BC president Ron MacDonald puts the situation succinctly when he says it’s "unpredictable".