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071220 Deutsche Bank Report - Weyerhaeuser - Could We See a Proxy Fight?

Deutsche Bank - Equity Research

Weyerhaeuser {Ticker: WY, Closing Price: USD 70.77, Target Price: USD 95.00, Recommendation: Buy}.

Could we see a battle over Board seats at Weyerhaeuser? With the 30-day window for filing director nominees having just opened (nominees must be filed 90-120 days prior to the April 17th annual meeting), we believe that activist shareholders could nominate independent candidates for the Board of Directors. While WY continues to restructure itself with the sale & closure of various operations across their portfolio, the pace of change has been frustrating to many shareholders. WY's second largest shareholder, Franklin Mutual Shares, voiced some of that frustration in a public letter last December. Several weeks later, in January of 2007, WY added a Director (Debra Cafaro of Ventas) suggested by Franklin.

We think a proxy battle by dissident shareholders would be a distinctly uphill battle. However, it would highlight the situation at Weyerhaeuser and could spur more rapid action at the big Tacoma- based forestry giant. While we believe that WY clearly understands the need to change, questions remain about the pace and scope of change. Even amidst the cautious confines of the forest products industry, Weyerhaeuser has often been regarded as slow-moving and deliberative.

The bottom line? We think there is at least a 50/50 possibility that activist shareholders could nominate independent Board candidates over the next 4 weeks. While we're not convinced that such moves would yield Board seats, we think the attempt might accelerate the pace of change and would almost certainly prove constructive for the stock.