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Originally published May 5, 2007 at 12:00 AM | Page modified May 5, 2007 at 2:01 AM

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Timber giant may sell containerboard and packaging division

Weyerhaeuser said Friday that it may sell its containerboard and packaging unit, stoking speculation the Federal Way company is preparing...

Bloomberg News

Weyerhaeuser said Friday that it may sell its containerboard and packaging unit, stoking speculation the Federal Way company is preparing to become a real-estate investment trust.

The lumber producer's shares jumped 5.7 percent, the most since 2002, after Weyerhaeuser said in a statement that it will review options for the division, which accounts for a third of its revenue. The company said it may sell the unit or merge its assets with a rival.

Weyerhaeuser issued the statement Friday as it released first-quarter financial results, which trailed analysts' estimates.

Changing to a real-estate investment trust (REIT) would lower tax rates and offer higher payouts to investors, analysts said.

Shedding the packaging business would be "a major step on Weyerhaeuser's road to becoming a REIT," Mark Wilde, an analyst at Deutsche Bank Securities in New York, said.

Chief Executive Officer Steve Rogel has sold assets and closed some wood-product plants in the U.S. and Canada amid a slump in building materials. Weyerhaeuser shed its fine-papers unit to Domtar Inc. in March to create Domtar Corp., the largest North American maker of office paper. Weyerhaeuser is also moving to sell wood-product distribution centers in Canada and the U.S.

"We are positioning Weyerhaeuser to grow in areas that present the greatest opportunities for our shareholders and employees," Rogel said on a conference call with analysts. He declined to elaborate on whether the company is considering becoming a REIT or keeping the current structure.

Weyerhaeuser and Temple-Inland are the last two major corporate owners of U.S. forests. Temple-Inland, based in Austin, Texas, said Feb. 26 it planned to sell its timberlands to focus on packaging and building materials.

Investors have urged both companies to turn their timber businesses into REITs after Congress last year failed to adopt a $1 billion measure that would have given equal tax treatment to forestland owned by corporations and REITS.

Weyerhaeuser and Temple-Inland pay a top tax rate of 35 percent, while REITS generally pay 15 percent. The U.S. legislation would have allowed Weyerhaeuser and Temple-Inland to pay 15 percent on profit attributable to harvested trees.

Weyerhaeuser reported a profit of $755 million, or $3.22 a share, in the first quarter after a gain on the sale of assets to Domtar. A year earlier, it posted a loss of $576 million, or $2.34 a share, after a write-down of the fine-paper business. Sales in the latest quarter fell 12.6 percent to $3.89 billion.

Excluding special items, profit was 20 cents a share, the company said. The company was forecast to earn 34 cents, the average estimate of 16 analysts surveyed by Bloomberg.

"We see continued challenges in many of our markets, especially in wood products where we expect to see a weaker than normal increase in seasonal demand" in the second quarter, Rogel said in the statement.

Weyerhaeuser stock rose $4.47 to close at $82.62 Friday. The percentage gain was the most since November 2002. The shares have climbed 17 percent in the past 12 months.

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