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Georgia-Pacific Set for Strategic Separation, Unisource Stays with GP

Wednesday, May 08, 2002

Press release from the issuing company

* Transaction creates two separate, publicly traded companies with distinct strategies, investment attributes and value creation potential * Consumer products and packaging businesses to become a new, publicly traded company * Initial public offering of new company expected in third quarter 2002 * Full separation of the new company from Georgia-Pacific expected to be completed in first half of 2003 with tax-free distribution of shares in the new company to existing Georgia-Pacific shareholders * Building products manufacturing, building products distribution and Unisource businesses to continue as Georgia-Pacific Corp. * Bondholders to be offered exchange of existing Georgia-Pacific bonds for bonds of new company * Georgia-Pacific to raise new debt in connection with separation transaction ATLANTA, May 7 -- Georgia-Pacific Corp. today announced that its board of directors has unanimously approved separating the company into two publicly traded companies -- a consumer products and packaging company and a building products and distribution company. "This decision by the board is consistent with the strategic direction we have been taking since 1999," said A.D. "Pete" Correll, chairman and chief executive officer. "Steps in our transformation have included the separation of our timberlands into The Timber Company and the subsequent merger with Plum Creek Timber Co., the acquisition of Fort James Corp. in 2000, and the sale of the majority of our white paper assets to Domtar Inc. in 2001. "In deciding to separate, we are recognizing that we have two distinct businesses with different financial and operating characteristics, capital needs, cyclicality, growth potential and investment attributes," Correll said. "We are aligning our businesses into two new companies, each of which will have a distinct strategic focus and competitive strengths. Looking forward, each of these two companies will be positioned to independently pursue their respective strategies for shareholder value creation." New Company: A Leader in Consumer Products and Packaging The $12 billion consumer products and packaging company will consist of Georgia-Pacific's $7 billion consumer products business, $2.5 billion packaging business and $2.3 billion pulp and paper businesses. Combined operating profits of these businesses were approximately $1.2 billion in 2001. Operating profits by business segment are highlighted below. Business Segment 2001 Operating Profits Percent of (in millions) Operating Profits Consumer Products $792 million 66 Packaging $384 million 32 Pulp and Paper (excluding Unisource) $21 million 2 As an independent entity, the new company's management will seek to focus on sustainable growth by improving its portfolio of brands that compete in key consumer products categories in North America and Europe. The company will capitalize on its core competencies in product marketing and development, supply chain management and manufacturing. Its consumer products brands will include Quilted Northern, Brawny, Dixie, Vanity Fair, Angel Soft, Sparkle, Mardi Gras and Soft 'n Gentle. It will continue to produce and supply tissue products for the mass retail and club channels, as well as for away-from-home tissue markets. The new company will continue capturing operating synergies through integration of the former Fort James assets. Georgia-Pacific's customer-focused packaging solutions business, which is supported by its containerboard manufacturing assets, also will be part of the new company. The new company also will include paper manufacturing assets that are located within tissue manufacturing facilities as well as Georgia- Pacific's existing fluff and market pulp mills, which enhance the overall manufacturing base. The new company's management team will be led by Correll as chairman and chief executive officer. Other key members of the management team will include Danny Huff as executive vice president and chief financial officer; Michael Burandt as president - North American consumer products; John Lundgren as president - European consumer products; David Paterson, president - packaging and pulp; and George Wurtz, president - paper and bleached board, all of whom presently hold these positions with Georgia-Pacific; and Kenneth Khoury as executive vice president and general counsel, who currently is vice president, deputy general counsel and secretary for Georgia-Pacific. The new company's name and its board of directors will be announced at a later date. Georgia-Pacific: A Focused Building Products and Distribution Business After the separation, Georgia-Pacific will continue to operate its $13 billion building products and distribution businesses, including the $3.2 billion building products manufacturing business, the $3.8 billion building products distribution business, and the $6 billion Unisource paper distribution business. Operating profits between 1999 and 2001 for these businesses averaged $527 million for building products manufacturing, $51 million for building products distribution and $95 million for Unisource. Operating profits by business segment between 1999 and 2001 are highlighted below. Business Segment Operating Profits (in millions) % of Total % of 2001 Cumulative Operating Total 1999 2000 2001 Profits (1999-2001) Building Products Manufacturing $1,142 359 83 42 78 Building Products Distribution $63 23 67 34 8 Unisource (excludes bleach pulp & paper) $78 158 48 24 14 Georgia-Pacific will be a leading manufacturer of residential building products in North America. Its key manufactured products include Southern pine plywood, oriented strand board, dimensional softwood and hardwood lumber, pressure-treated lumber, gypsum wallboard, particleboard, medium density fiberboard and other industrial wood panels, wood-bonding adhesives, pulp and paper chemicals, and other industrial chemicals. The company also will include the building products distribution and Unisource businesses. The building products distribution business is a leading wholesaler of residential building products in the United States, serving national home improvement chains such as The Home Depot and Lowe's, as well as independent retailers and industrial accounts. Building products distribution also utilizes its significant transportation assets and facilities to offer distribution services to other building materials manufacturers. Unisource is a large North American distributor of packaging systems, printing and imaging papers and maintenance supplies to a wide range of customers, including the office and hospitality sectors, commercial printers, retail copy centers and government institutions. These businesses will be managed with a goal of earning superior cash returns over the business cycle through focus on operating excellence, customer service, capital discipline, cost containment and debt reduction. Georgia-Pacific's management team will be led by Lee Thomas as president and chief executive officer. Thomas also has been elected to the company's board of directors. Other key management team members include James Kelley as executive vice president, chief administrative officer and general counsel; Ronald Paul as executive vice president - wood products and building products distribution; John Rasor as executive vice president - industrial wood products, gypsum and wood procurement; Mario Concha, president - chemical; and Charles Tufano as president - Unisource, all of whom currently hold these positions with Georgia-Pacific; and James Moylan Jr. as executive vice president and chief financial officer - building products and distribution. "Georgia-Pacific will be well-positioned to capitalize on its key strengths -- a widely recognized name, leading market positions, low-cost manufacturing, nationwide distribution reach and cash flow generation capability throughout the business cycle," Thomas said. "I am enthusiastic about the opportunity to help forge a newly unified building products strategy that builds on those strengths." Description of the Separation Transaction "Delivering value to our current investors continues to be the centerpiece of this separation strategy," Correll said. "We are excited about the future of these two organizations and believe that sharpened focus and independence will yield great benefits for our employees and customers, and enhanced value for our stockholders." Georgia-Pacific intends to effect the separation through an initial public offering of approximately 15 to 20 percent of the outstanding shares in the new consumer products and packaging company. Proceeds from the initial public offering will be used to repay outstanding Georgia-Pacific debt. It is expected that the public offering will occur in the third quarter 2002. During the first half of 2003, Georgia-Pacific expects to make a tax-free distribution to its shareholders of all the remaining shares of the new company. Georgia-Pacific expects to offer bondholders the opportunity to exchange their current Georgia-Pacific bonds for bonds in the new company in a manner that preserves bondholder value. In connection with the separation transaction, new credit facilities will be raised and new long-term bonds will be issued by Georgia-Pacific to repay existing indebtedness. The board of directors' approval of the separation is contingent upon the company obtaining satisfactory debt and equity financing. The exact structure and timing of the separation is subject to industry and capital market conditions. This news release is not an offering of any securities. Any offering will be made only by a prospectus. Goldman, Sachs & Co. is acting as overall financial advisor to Georgia- Pacific. Morgan Stanley is acting as capital markets advisor to Georgia- Pacific with respect to the debt-related financings in connection with the separation.




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