Brilliant Tax Savings Move by Weyerhaeuser

Weyerhaeuser Company (NYSE:WY) will watch its tax rate drop from 35% to 0%, that's right Zero when they convert to a REIT in 2010. 

NEW YORK (Dow Jones | By Joan E. Solsman, Dow Jones Newswires; 212-416-2291) -- Shares of forest-products company Weyerhaeuser Co. (WY) jumped today, following an announcement that it will convert to a real-estate investment trust next year, a move it says will "best support the company's strategic direction."

There has been speculation for some time whether Weyerhaeuser, whose most valuable asset is some 2 million acres of forest in the Pacific Northwest, would change to a REIT. Doing so would slash Weyerhaeuser's tax rate from the current 35% to zero, a competitive decision because rival timber companies that are REITs pay no income tax.

Chief Executive Dan Fulton said Tuesday that move "will position us to be more competitive in our timberlands business." He added the company will be able to convert with its current business mix, which also includes wood products, cellulose fibers and real estate.

In October, Weyerhaeuser reported break-even third-quarter results as the company's cost-cutting efforts appeared to be working. All of Weyerhauser's segments have been hurt by the housing downturn, so it has been shedding manufacturing plants and other assets not considered crucial to its core forest products operations. The company expanded its real-estate operations at the peak of the housing bubble and has since recorded substantial write-offs.

Without a firm date set for the conversion, the company said it would most likely occur sometime next year, depending on the state of the economy and tax policies like shareholder tax rates and REIT laws governing profit distribution.

But at the end of the year of the conversion, the company will issue a special dividend to holders, mostly in stock, of its undistributed earnings. As of the beginning of 2010, Weyerhaeuser expects that figure to total just under $6 billion.

Shareholders will need to vote to authorize the increase in the number of shares because of the dividend; holders will receive information on the proposal in February ahead of a vote at its April annual meeting.