Georgia-Pacific Corporation - Company Profile, Information, Business Description, History, Background Information on Georgia-Pacific Corporation

133 Peachtree Street, Northeast
Atlanta, Georgia 30303

History of Georgia-Pacific Corporation

Georgia-Pacific Corporation is a leading manufacturer and distributor of building products, industrial wood products, pulp, paper, packaging, and chemical products. Although it eventually came to own or control over six million acres of timberland throughout North America, the company did not hold the title to a single tree for the first 24 years of its existence. Instead, Georgia Hardwood Lumber Company began operation in 1927 in Augusta, Georgia, as a hardwood lumber wholesaler with $12,000 in start-up funds provided by its founder, Owen Cheatham.

During its first decade in business, the company began lumber manufacturing in addition to its wholesaling activities. Cheatham focused on expanding the company's milling capabilities in the southern United States, a strategy that allowed it to become the largest supplier of lumber to the U.S. Army during World War II. The company's purchase of a plywood mill in Bellingham, Washington, in 1947 coincided with plywood's growing popularity in the construction industry and gave the company a strong competitive advantage.

Additional plywood mills in Washington and Oregon were purchased in 1948, as well as another plywood plant in 1949, to support this growing business area. The company changed its name in 1948 to Georgia-Pacific Plywood & Lumber Company to reflect more accurately its geographic and operational expansion.

In 1951 the company changed its name again, to Georgia-Pacific Plywood Company. Cheatham gradually developed a reputation as an industry maverick. Over the next six years, he conducted a $160 million timberland-acquisition program in the western and southern United States. To finance this program, he borrowed heavily from banks and insurance companies expecting that the proceeds gained from the timber in the future would more than cover the required return on their investment. In order to be closer to these newly purchased resources, the company moved its headquarters from Georgia to Olympia, Washington, in 1953 and then again to Portland, Oregon, the following year.

Over the next decade Cheatham used his financing model several times to acquire additional forest acreage and manufacturing facilities, including Coos Bay Lumber Company and Hammond Lumber Company in 1956. That same year the company's name was changed, for the third time since its founding, to Georgia-Pacific Corporation. Subsequent purchases of Booth-Kelly Lumber Company in 1959 and W. M. Ritter Lumber Company in 1960 took the company to the number-three position in its industry.

The company's unorthodox approach to growth was evident in other areas as well. It opened a kraft pulp and linerboard mill in Toledo, Oregon, in 1957 and its first resin adhesive plant at Coos Bay, Oregon, in 1959. The latter manufacturing operation was intended at first to supply the resin required for the company's plywood-production business but gradually grew large enough to supply resin to other plywood manufacturers as well. Georgia-Pacific was also one of the first manufacturers to use wood by-products rather than timber in pulp production. The company continued to pioneer in the development of plywood products, eventually shifting away from the traditional use of Douglas fir to a process using less-expensive southern pine. This wood previously had been considered inappropriate for use in plywood because of its high resin content.

During the 1960s Georgia-Pacific embarked upon another series of acquisitions by buying several lumber and paper companies across the country. These included Crossett Lumber Company in 1962; Puget Sound Pulp and Timber Company, Vanity Fair Paper Mills, St. Croix Paper Company, and Fordyce Lumber Company in 1963; Bestwall Gypsum Company in 1965; and Kalamazoo Paper Company in 1967. After building its first corrugated-container plant in Olympia in 1961, the company added a series of additional manufacturing facilities for lumber, paper, and chemical products over the course of the rest of the decade.

Upon Cheatham's death in 1970, Robert B. Pamplin, who had worked with Cheatham since the company's inception, became chairman and chief executive officer. Although the company's building-products business benefited from the housing boom of the early 1970s, its paper and pulp interests struggled due to low prices and sluggish demand. To bolster its manufacturing operations, the firm expanded production of two new building materials, polyvinyl chloride (PVC) and particle board, the former through a joint venture with Permaneer Corporation. Georgia-Pacific opened its own PVC manufacturing plant in 1975. When the cost of oil increased soon afterward, however, the company's prices for its PVC-molding products proved to be too high to compete effectively with wood moldings, resulting in significant losses.

It was also during this period that the firm was required by the Federal Trade Commission (FTC) to defend its acquisition of 16 small firms in the South that supplied the company with 673,000 acres of the southern pine used to make plywood. Charging that the acquisitions tended to create a monopoly, the FTC issued a consent order in 1972 that forced Georgia-Pacific to divest 20 percent of its assets. This step resulted in the formation of a spin-off company called Louisiana-Pacific Corporation. The order also prohibited the firm from acquiring any other softwood plywood companies, and imposed restrictions on timberland purchases in the South for five years and on plywood mill acquisitions for ten years.

A slump in the housing industry in 1973 and 1974 depressed the company's lumber and plywood business. Georgia-Pacific continued to post record profits, however, due largely to the growth of its chemical, pulp, and paper operations. These areas experienced slowdowns as well by the middle of the decade. Nevertheless, the company moved forward in its long-range program to increase manufacturing capacity across the board. It expanded through vertical integration into the production of additional chemicals derived from wood wastes, such as chlorine, phenol, and methanol. The 1975 acquisition of Exchange Oil & Gas Corporation enabled the company to become more self-sufficient by developing its own reserves of important raw materials required for the operation of its chemical plants.

In 1976 president Robert Flowerree succeeded Robert Pamplin as chairman and chief executive. A 25-year Georgia-Pacific veteran, Flowerree had been instrumental in taking the company into the chemical business. He was also considered to be more cautious than his predecessors. Under his leadership, the firm expanded its building products to include roofing materials, which it began to produce in a converted paper mill.

By 1978 the company was drawing three-quarters of its sales from the southern and eastern United States. This shift away from the West was instrumental in the decision to move the headquarters of the firm back to Georgia, 150 miles away from its original location in Atlanta. The relocation caused many employees to leave the company, and several senior executives chose to retire rather than make the move. This shift left the firm vulnerable at a critical time, particularly in the growing chemical area.

The dawning of the 1980s brought with it another housing slump, but Georgia-Pacific was able to use its chemical business to maintain overall growth. Its plywood products, however, were slowly losing competitive ground to new and cheaper materials, such as waferboard and oriented-strand board, which were being manufactured and sold aggressively by such firms as Louisiana-Pacific and Potlatch Corporation. Until then, Georgia-Pacific had not placed significant emphasis on these materials, with only one plant producing waferboard and another producing oriented-strand board. Most of its capital expenditure was directed instead toward upgrading existing facilities and buying timberlands.

In 1982 T. Marshall Hahn Jr., who had succeeded Flowerree as president in 1976, became chief operating officer. When he became chairman and chief executive officer one year later, following Flowerree's early retirement, he faced several serious problems. Demand for paper was strong, but only in the area of higher-quality products, not in the basic linerboard and kraft paper sectors in which Georgia-Pacific concentrated. Although an upturn in the construction industry augured well for the company's building products business, the high interest rates on the debt the firm had used to fund expansion severely limited its freedom to take advantage of opportunities in that area. Furthermore, its chemical business, once the firm's star division, fell on hard times as sales dropped significantly. This business was sold to Georgia Gulf Corporation in 1984, followed by the sale of Exchange Oil & Gas in 1985. The company retained its specialty chemicals business, which continued to deliver good returns.

Hahn instituted a series of measures designed to get the company back on its feet. These included reviewing the health of its assets, improvement of cost controls and productivity, and continued investment in areas such as the pulp and paper business, which could insulate the company from future economic calamities and provide a hedge against cyclical upturns and downturns in the various industries in which the company operated. In 1984 Georgia-Pacific acquired a linerboard mill, several corrugated container plants, and over 300,000 acres of forest from St. Regis Corporation. It converted two paper plants to the production of higher-margin products, such as light-weight bleached board and white paper used by copiers and computer printers. It also successfully expanded a wood products mill in South Carolina and a plant in Florida to produce lattice and fencing materials, which were in heavy demand.

In 1986 the company entered another area of the paper market through the introduction of Angel Soft bathroom tissue. By the end of 1987 Georgia-Pacific's tissue and towel operation, combined with its production of linerboard, kraft, and fine papers, enabled the company to achieve higher profitability in paper products than in wood products for the first time in its history, despite tough competition from major consumer products companies such as the Procter & Gamble Company.

Other elements of Hahn's turnaround strategy included further decentralization of the company's operations, which forced plant managers to compete with each other for capital funds, and the addition of several building materials distribution centers nationwide to capitalize on the growing trend toward remodeling and do-it-yourself projects.

During the last few years of the decade, the company made further acquisitions. These included U.S. Plywood Corporation and selected assets of the Erving Distributor Products Company in 1987, and Brunswick Pulp & Paper Company and American Forest Products Company in 1988. Its most controversial purchase, however, commenced in 1989 with an offer to buy Great Northern Nekoosa Corp of Connecticut, a competing producer of pulp, paper, containerboard, lumber, and plywood.

Originally incorporated in 1898 as the Northern Development Company but soon renamed Great Northern Paper Company, the predecessor to Great Northern Nekoosa had begun producing newsprint in 1900. By 1924 it was manufacturing corrugated paper and a decade later began a gradual transition from wrapping paper to business paper production. The company expanded its pulp and paper operations over the next 40 years. In 1970 the Great Northern Paper Company and the Nekoosa Edwards Paper Company merged to become Great Northern Nekoosa Corporation. Great Northern Nekoosa acquired several firms subsequently to enhance the company's manufacturing and distribution capabilities, including Heco Envelope Company in 1973; Pak-Well in 1975; Leaf River Forest Products in 1981; Barton, Duer & Koch, and Consolidated Marketing, Inc. in 1982; Triquet Paper Company in 1983; Chatfield Paper Company in 1984; J&J Corrugated Box Corporation and Carpenter Paper Company of Iowa in 1986; Owens-Illinois's forest products company in 1987; and Jim Walter Papers in 1988.

Great Northern Nekoosa was a particularly attractive candidate for acquisition because of its depressed stock price. Georgia-Pacific saw the combination of the two companies as an opportunity to achieve economies of scale and other cost savings. In Hahn's opinion the acquisition would enable Georgia-Pacific to add manufacturing capability at less expense than by building its own plants. On the other hand, Great Northern Nekoosa viewed Georgia-Pacific's $3.74 billion bid as a hostile takeover attempt. It attempted to halt the proposed buyout with a series of lawsuits and an extensive search for another buyer. All of these measures failed, however, and the purchase was completed in March 1990. Georgia-Pacific assumed a significant amount of debt as a result, but was able to eliminate part of the burden through the subsequent sale of several mills and some timberland to Tenneco, the John Hancock Mutual Life Insurance Company, and the Metropolitan Life Insurance Company.

With its hard-fought acquisition of Great Northern Nekoosa complete, Georgia-Pacific held market leadership positions in containerboard, packaging, pulp, and communication papers and was a major producer of related products, such as tissue, kraft paper, and bleached board. The most significant threat to the company's continued growth would be the economy's effects on its key business areas. Although the firm's diversification into paper and pulp manufacturing was intended to help its survive cyclical downturns in lumber and housing construction, its new business areas were also highly cyclical in nature, with peaks and valleys lagging only months behind those occurring in lumber and housing.

Paper prices fell soon after Georgia-Pacific closed the Great Northern Nekoosa deal, but true to plan, the declining paper market was offset by record profits in the company's building products division, which posted profits of $432 million in 1990 despite low levels in housing starts. Georgia-Pacific was also able to reduce a significant amount of the $8 billion debt it saddled through its Great Northern Nekoosa purchase, thanks to the company's healthy cash flow. Despite these favorable signs, net income fell to $365 million in 1990, down from $661 million in 1989.

Prices of Georgia-Pacific shares on the New York Stock Exchange fell almost 50 percent in 1990 in response to investors' fears that the company might be acquiring too much debt. To ease this concern, the company took out a two-page ad in national magazines to convey the message that the company had significant cash flow to pay down its debt and had laid the groundwork for a strong future.

Despite Georgia-Pacific's intentions, profits took a dive in 1991 when the bottom dropped out of both the building materials and pulp and paper markets. The company reported a net loss of $151 million, compared to profits of over $3 million the preceding year. Georgia-Pacific continued to rely on its substantial cash flow to pay shareholders and pay down its debt in 1991.

In 1991 the company also reorganized its building products division along product lines, as opposed to its previous method of management along geographical lines. It also completed the expansion of its Ashdown, Arkansas, paper mill with the addition of the world's largest and fastest paper machine. A.D. (Pete) Correll, who joined Georgia-Pacific's paper division in 1988 after being wooed from his position at the Mead Corporation, was elected president and chief operating officer.

Despite its continuously healthy cash flow and record-breaking profits in its building products division, the company posted losses again in 1992. In response to the recession, which continued to affect Georgia-Pacific's key businesses, management chose to focus on keeping costs down and reducing debt in 1992.

Georgia-Pacific did this by paring down its "non-strategic" assets in early 1993, selling its Butler Paper distribution operations (acquired as part of its purchase of Great Northern Nekoosa) to Alco Standard Corporation and its roofing manufacturing business to GAF Corporation in March 1993. Proceeds of both sales, estimated at nearly $225 million, went to further reduce the company's debt.

When Georgia-Pacific announced in January 1993 that Correll was to succeed Hahn as its chairman and CEO, the company's financial outlook began to look brighter. Housing starts were on the rise again, and lumber production remained far below demand. Lumber prices had been rising to record highs since October, and industry analysts expect the growth to continue. Georgia Pacific had grown to become the largest supplier of building lumber in the United States and was perfectly poised to benefit from improvements in the economy.

The pulp and paper market, however, remained in a slump, causing some to question the wisdom of the Great Northern Nekoosa takeover. While Correll admitted that in the short term the purchase may not have seemed like such a good idea, he firmly believed that the investment would pay off substantially once paper industry cycles began to climb again. Demand for the company's pulp and paper products is affected by the overall production capacity of the industry, as well as by economic factors such as currency exchange rates and conditions in foreign markets.

Principal Subsidiaries: American Forest Products Company; Ashley, Drew & Northern Railway Company; Brunswick Pulp & Paper Company; California Western Railroad; Fordyce and Princeton R.R. Company; G-P DISC, Inc.; Georgia-Temp. Inc.; Georgia-Pacific Export, Inc.; Georgia-Pacific Foreign Sales Corporation; Georgia-Pacific Leasing Corporation; Georgia-Pacific Paper Sales, Inc.; Gloster Southern Railroad Company; Great Northern Nekoosa Corporation; Hudson Pulp & Paper Corporation; Phoenix Athletic Club, Inc.; Saint Croix Water Power Company (Canada); The Sprague's Falls Manufacturing Company; St. Croix Water Power Company; Superwood Corporation; Superior Fiber Products, Inc.; Thacker Land Company (57%); U.S. Plywood Corporation; XRS, Inc.

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Further Reference

"The Best of Everything," Forbes, March 15, 1977.Calonius, Erik, "America's Toughest Papermaker," Fortune, February 26, 1990.Gold, Jackey, "Culture Shock," Financial World, February 20, 1990.Norvell, Scott, "Southern Comfort for a Timber Giant," New York Times, March 23, 1993, sec. 3, p. 6.Reier, Sharon, "New Math vs. Old Culture," Financial World, March 22, 1988.Roots, Atlanta, Georgia: Georgia-Pacific Corporation, 1988.Wiegner, Kathleen K., "A Tale of Two Companies," Forbes, March 6, 1978.

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