Market may lure L-P away
Portland-based firm may decide to follow cheap wood south
Louisiana-Pacific's likely departure from Portland is all about cheap wood.
The Portland-based building products firm, founded here by Harry A. Merlo in 1973, said this week that it is considering leaving town for one of three cities in the Southeast.
Company spokesman David Dugan said Wednesday that the company will decide this summer whether to stay in Portland or go to Nashville, Tenn.; Charlotte, N.C.; or Richmond, Va.
A move is probable, industry analysts say, because it makes economic sense. L-P made the switch long ago from the big trees of Oregon to an inexpensive substitute for plywood that is providing the backbone of the nation's booming housing market.
And while the company won't declare its next move right now, cutting costs has become increasingly important in the highly competitive building products industry. L-P, deep in debt, has had no choice but to go cheap.
In his 2002 year-end letter to stakeholders, Chief Executive Officer Mark Suwynn said that given the consolidation of the 'big box' retailers, 'the only competitive edge in a commodity business is to have the lowest possible delivered costs.'
L-P is the world's largest producer of oriented strand board, or OSB, which overtook plywood in market share in 1999. OSB, which used to be known as 'wafer board,' is the preferred product for home builders because it sells for $80 to $100 less per 1,000 square feet than plywood.
OSB is built from fast-growing plantation trees such as southern yellow pine and aspen. As a result, L-P's 14 OSB mills are located in places such as Michigan, Texas and Alabama, where the trees grow readily, rather than Oregon.
The question to industry analysts, such as Paul Ehinger of Eugene-based Ehinger & Associates, is not why L-P would leave Portland, but 'Why are they still here?'
He said: 'There's no reason for L-P to have corporate headquarters in Portland. They have no active interests out here. Just about everything they own west of the Mississippi is for sale.'
The company's most recent annual report shows more than $1 billion worth of debt and warns of consequences, including a potential downgrade in the firm's credit rating.
In response, the company has embarked on a massive divestiture plan, selling 900,000 acres of timberland and moving out of traditional lumber production altogether.
L-P, which employs 160 people in Portland, also is looking to consolidate its administrative offices, which currently are spread out in six states plus a Canadian province, Dugan said.
The company's decision will consider a number of factors, including proximity to customers and production plants, taxes and financial incentives from public agencies.
'We've been talking with the city and the state in all four locations about financial incentives they might offer us,' Dugan said.
Officials from the company, the city of Portland and the state of Oregon would not provide details about the ongoing negotiations to keep L-P downtown.
List of losses
The loss of L-P's headquarters would add to a painfully growing list of businesses divesting from Portland. The list includes Columbia Sportswear, which gave up on developing in Portland and moved to Beaverton in 2001, and Willamette Industries Inc., the city's final Fortune 500 company, which was acquired by Weyerhaeuser Co. in a hostile takeover bid.
Duane McDougall, former CEO of Willamette Industries, told the Tribune: 'I hope that the city and the state do everything they can' to keep L-P in Portland. 'This is a company that has made tremendous contributions to Portland. It would be a shame to see them leave.'
But experts said Portland's chances are slim.
'Given where their mills are, it makes sense for L-P to move to a more strategic place,' said Shawn Church, editor of Random Lengths, an industry magazine.
In addition, cash-strapped governments in Portland and Oregon are in no position to offer lucrative financial packages to private companies.
'We're not flush with resources,' said Scott Ballo, spokesman for the state Department of Economic and Community Development. 'So it makes it difficult for us to compete with other states right now.'
The business climate
While the move would appear to have little to do with city policies, the question is coming up again: Is Portland hostile to its business community?
McDougall, who said he was dissatisfied with the level of help he got from public agencies in his bid to withstand the hostile takeover of Willamette, isn't the only local business leader to complain about an 'attitude of indifference to the plight of the business community' at City Hall.
But Sam Adams, the mayor's chief of staff, said the city has worked hard to combat that perception by reforming the business income tax and streamlining regulations and permits.
'Our intention is to eliminate any legitimate barrier that stands in the way of business in Portland,' Adams said. 'We've made a lot of progress.'