by Jennifer Poole
for The Ukiah Daily Journal
The Strategic Timber Trust's $332 million initial public offering hit the stock market Wednesday -- but generated nothing but yawns. After a day of distinct lack of interest by large institutional investors, needed to give a "floor" to any stock price as itºs first released, the offering was yanked on Thursday.
STT has provided only this statement: "The expected price from our IPO was below the targeted range that we had set. As a result weºve chosen to withdraw our public offering. We are now exploring other financing options open to us and will continue to operate as a private company."
According to one financial analyst interested in the STT deal, word on the street is: "There was a division that was planned between selling to institutional investors and retail investors. Retail bought the deal, but the institutional investors didn't -- they didn't by a lot. They didn't come close in terms of volume of shares placed."
Other sources confirm this basic analysis, adding that there were also concerns about management scraping too much off the top of the financing for its own benefit. The various partnerships behind the STT offering had borrowed a total of more than $500 million to put the deal together. These banks who will now not be paid back by the public, i.e., stock buyers, are reportedly meeting amongst themselves "in crisis mode" to assess their next moves.
Primary underwriters for the STT IPO, Salomon Smith Barney, are saying
only that the offering has been "indefinitely postponed."
There is talk of a liquidation sale of the timber on the Louisiana acreage.
There is speculation about the 79,000 Mendocino County acres that were part of the deal reverting back to Pioneer Resources, the Oregon-based logging outfit which bought the land from Rich Padula's local company, Coastal Forestlands, Ltd., for $130 million last July. Pioneer then turned around and "sold" itself and all of its holdings to STT three months later, for $35 million in cash, approximately $200 million in debt relief, and the promise of more cash after the stock deal was done.
STT filed its original IPO prospectus back in January and had hoped to go public in mid-April. But questions raised about the accuracy of the timber inventory figures for the Mendocino acreage, one of the primary assets listed in the prospectus, had slowed the process.
The company originally claimed it would log 34 million board feet of timber this year alone from what it calls its "Coastal Forest," the old 64,000-acre Longview tract stretching from Point Arena south along the coast. It has now scaled back that figure to 9 million, with the caveat that: "Even with these lower projected current sales, however, there can be no assurance that the [California Department of Forestry], as it monitors, enforces and revises our Option A plan, will approve the sales we have planned in each year."
The final amendment to the prospectus, filed the day before the stock was put on the market, does not, however, disclose that STT is currently "in violation" of its Option A long-term timber management plan, as CDF Santa Rosa's Dean Lucke put it last week. The violation is due to the results of CDFºs latest inventory monitoring report, released in May, which shows an average of only 4,000 board feet per acre of commercially valuable softwoods on the Coastal Forest property, not the 6,840 board feet that the Option A plan shows should be there, and certainly not the 10,000-plus board feet of "merchantable timber"that the IPO prospectus still claims.
Not only that, the prospectus still says that only 13 percent of the Coastal Forest timber inventory is commercially valueless hardwoods, even though according to CDF's May report, 56.6 percent of the volume on that property consists of tan oak and other hardwoods.
How this failure to sell the STT stock will affect Coastal Forestlands' proposal to convert 10,000 acres of the Coastal Forest to an industrial vineyard is still an open question. STT's general counsel, Joseph Rendini, wrote a May 27 letter to Padula to "clear the air" between the two companies after the furor caused by press reports on the "10,000 acres of grapes" proposal.
Among other complaints, Rendini reminds Padula that his vineyard option states that any conversion effort is subject to STTºs determination that it won't in any way -- in STT's "reasonable discretionæ -- adversely affect the company's "ability to operate or manage the property ... as a tree farm." Rendini also claims that "the option agreement is so vague that we have serious doubts about its enforceability."
Although CFL is not talking to the press, there have been recent meetings between CFL representatives and some local environmental groups, including the Gualala Watershed Council and the Western Sonoma County Rural Alliance.
According to several sources, ex-Sonoma County supervisor Ernie Carpenter and Brooktrails Community Services District director Bob Whitney, both of whom work for CFL, have been telling environmentalists that the timber industry is dead anyway on the North Coast and CFLºs vineyard project is preferable to the only other alternative: rural subdivisions for rich people.
If you don't sign on to our vineyard project, enviros are being told, and it doesn't go through, those out-of-state Strategic Timber Trust people will exercise the 362 certificates of compliance that go with the property (certificates that Padula obtained, by the way) and turn it all into a more luxurious Sea Ranch north.
If you do support us, CFL says, we'll exercise our additional $5 million option to "buy back" almost all those CCs from STT and ensure there'll be no more than 15 timber parcels in addition to our 40 vineyard parcels on the entire 64,000 acres. The CFL reps are also promising that they wonºt use methyl bromide and say irrigation water won't be a problem, because they plan to build 200 ponds to catch the rain water instead of sucking water from the streams.
The general reaction so far from the environmental groups seems to be, as local timberland owner and activist Helen Libeu put it: "It was CFL who perpetrated this; it was these people who bought this land and reduced it to such a condition. Now we're supposed to call them heroes? History should tell us what they'll do in the future."
History, or at least the newspaper archives, can remind us of previous promises Rich Padula has made to neighbors of his logging operations. In 1989, there were several articles in the Independent Coast Observer newspaper about concerns Friends of the Garcia River had over recently increased rates of harvest on the Longview tract by R & J Timber, Padulaºs then-company.
Not to worry, Padula said. "My program is believing in natural selective forestry, where it doesn't adversely affect the watersheds. We're into leaving the smaller trees, so there will be more in the future," he was quoted in an Aug. 4, 1989 story. Earlier that year, Padula claimed in an April 14, 1989 ICO story that what his company was doing was "an effort on his part to rehabilitate much of the destruction done by past logging practices."
"We're trying to be responsible people," Padula said. "I'm a tree farmer. There's a lot of trees there for the long run, and we plan on being here for a long time."
© Jennifer Poole 1999... used with permission of the author
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