Wausau Paper's 6.3% ownership stake shareholder Starboard Value says company should divest certain non-core assets, including paper business, timberlands and hydroelectric assets, among other recommendations in follow-up letter to CEO
October 3, 2011
– --States that the Company Should Seek to Monetize Non-Core Assets --Urges the Company to Engage with Starboard to Change and Improve the Composition of the Board --Remains Confident that Wausau is Deeply Undervalued
Starboard Value LP (together with its affiliates, "Starboard"), the largest shareholder of Wausau Paper Corp. ("Wausau" or the "Company") /quotes/zigman/208402/quotes/nls/wpp WPP -1.92% with 7.5% of the outstanding common stock of the Company, today announced that it delivered a follow-up letter to the Company's President and CEO, Thomas J. Howatt, and the Board of Directors to convey its updated thoughts after having met with management and the Board in late August. In the letter, Starboard stated its concern that, as currently conceived, Wausau's Tissue expansion project requires the Company to take on significant additional debt, which in turn would dramatically increase the risk profile for the Company's shareholders. Starboard urged the Company to finance the Tissue expansion project by divesting certain non-core assets, including the underperforming Paper business, the Company-owned timberlands and the hydroelectric assets. Starboard believes this would allow Wausau to unlock significant unrealized value for shareholders, remove the drain of the losses in the Paper business and at the same time significantly reduce risk by allowing Wausau to finance the Tissue expansion project without taking on additional debt. Starboard also stated that it looks forward to engaging in productive and constructive dialogue with the Board and management of the Company to change and improve the composition of the Board to ensure that the best interests of all shareholders are properly represented. Finally, Starboard stated that it remains confident that Wausau is deeply undervalued and that opportunities exist to significantly improve value for shareholders based on actions within the control of management and the Board.
The full text of the letter follows:
October 3, 2011
Thomas J. Howatt President and CEOWausau Paper Corp.100 Paper PlaceMosinee, WI 54455
CC: Board of Directors
We enjoyed meeting with you and the rest of the management team during the investor tour of your Harrodsburg, Kentucky tissue facility on August 31st. Starboard Value LP, together with its affiliates, currently owns 7.5% of the outstanding common stock of Wausau Paper Corp. ("Wausau" or the "Company"), making us the Company's largest shareholder. On July 28, 2011, we delivered a detailed letter (the "July 28 Letter") to you and the Board of Directors (the "Board") outlining our thoughts and perspectives on Wausau. A copy of the July 28 Letter is attached hereto for your reference. The purpose of this letter is to provide you and the Board with our updated thoughts and to begin what we hope will be a constructive and productive dialogue regarding corporate strategy and Board composition.
Based on our extensive and ongoing due diligence, we continue to be excited about the prospects for Wausau's Tissue business. We firmly believe that the Tissue business will continue to produce sustainable growth and solid profitability. In fact, at this time, we believe that the Tissue business alone is likely worth more than the enterprise value of the entire Company. We are also encouraged by your confidence that the $220 million Tissue expansion project should position Wausau to both reduce production costs and enter the high-end premium away-from-home towel and tissue market as the low-cost producer and leader in the green space. However, as outlined in the July 28 Letter, there is uncertainty around the cost and timing of this project and, as currently conceived, it requires the Company to take on significant additional debt, which in turn would dramatically increase the risk profile for shareholders.
To that end, we believe the Company must explore alternative means to finance this project, including the monetization of non-core assets such as the underperforming Paper business, the Company-owned timberlands and the hydroelectric assets. We believe the value of these three non-core assets are not currently reflected in Wausau's stock price. By divesting these assets, Wausau could unlock significant unrealized value for shareholders and at the same time finance the Tissue expansion project without taking on additional debt. We believe this would result in Wausau becoming a pure-play, well performing and conservatively capitalized Tissue business. We believe the market would put a premium valuation on Wausau if it acts on these opportunities.
We remain concerned with the continued underperformance of the Paper business. We believe this is the primary factor that has weighed on Wausau's stock and caused it to underperform its peers and the broader equity indices over almost any extended time frame. We have serious doubts that the recently announced headcount reductions in your Brokaw facility will be enough to turn this segment around. This is at least the sixth restructuring action taken in this business since 2005, yet performance continues to suffer and sustainable profitability has proven elusive. Instead of continuing with reactionary measures to stem losses in the Paper business, we believe the Board must be proactive and hire a financial advisor to immediately explore a sale of this business to one of several larger and better capitalized strategic acquirers. Such potential acquirers would be well positioned to realize substantial synergies by merging the Paper business with their own operations. Again, this would solve three problems at once by: (i) removing the drain of the losses in the Paper business, (ii) more conservatively financing the Tissue expansion project and (iii) unlocking value for shareholders.
We recognize that the actions we are proposing are a departure from the Board's current strategy and as such believe that changes to the composition of the Board are required to best implement a change of strategy at Wausau for the benefit of all shareholders. In these challenging economic times, we believe the Board must demonstrate the flexibility to explore alternative approaches to value creation and new, highly qualified directors are greatly needed to bring a fresh perspective into the boardroom. It is our hope and expectation to work constructively with you to change and improve the composition of the Board to ensure that the best interests of all shareholders are properly represented. As such, we urge you and the Board to engage with us as soon as possible regarding Board composition, director qualifications and required skill sets so that we may propose director candidates who can be most helpful to the Board in evaluating and executing on the opportunities we have proposed.
As we outlined in the July 28 Letter and above, we are confident that Wausau is deeply undervalued and that opportunities exist to significantly improve value for shareholders based on actions within the control of management and the Board. As the largest shareholder of the Company, our interests are directly aligned with those of all shareholders and we will work to ensure that our collective interests are represented on the Board.
We look forward to the opportunity to continue our dialogue with you and remain optimistic about the future of Wausau.
Jeffrey C. SmithManaging MemberStarboard Value LP
 Includes the 2005-2006 restructuring of the Brokaw facility (approximately $39 million in total charges), the 2007-2010 closure of the Groveton mill and related charges ($74 million in total charges), the 2007 exit of the Specialty Roll Wrap business ($1 million gain on sale) and the 2008-2009 closures of the Jay and Appleton Facilities ($37 million in combined total charges).
The text of the July 28, 2011 letter follows:
Starboard Reports 6.3% Ownership in Wausau Paper