Koch Industries buys Georgia-Pacific in a very big deal
Koch Industries is a resources-oriented conglomerate that continues to buck the oligopoly trend. The firm's announced acquisition of debt-ridden forestry products giant Georgia-Pacific for $13.2 billion will further extends its empire's revenues to $80 billion. That will push the little known Koch into the position of being the #1 privately-held company in the US, past Cargill.
Georgia-Pacific, which used to be a lumber company, had retreated from that struggling industry recently, selling off its forests and lumber mills.
The company is now the world's largest producer of paper products, including cups (Dixie-Cups), bath tissue (Quilted Northern), and paper towels (Brawny). It also has a strong position in cardboard. In addition, it is strong in building products and general-use printing and office paper.
Koch, in 2004, had already bought up some Georgia-Pacific assets in the pulp and cellulose areas. The company, privately held and controlled by two brothers, has accumulated a variety of enterprises over the years. Koch started in the oil industry, and now has holdings all over the resource map (it also operates in 50 countries).
- In 2004, it bought many of the DuPont fiber and materials business under the name INVISTA, making Dacron, Polarguard, Stainmaster, Lycra, Teflon, and a number of other products (a $4.2 billion deal).
- Its Flint Hills Resources, LP is an oil refiner.
- In the John Zink Company, it manufactures equipment for refineries and chemical plants.
- It has a financing arm that supports capital purchases by industry and a supply and trading division that deals in oil, metals, and chemicals among other products.
- Other areas include coal, salt, limestone, iron, sulfur, asphalt, fertilizer, plastic membranes, cattle, and mining equipment.
If Koch doesn't spin off the retail paper products (and it says it will not), it will find itself in quite a different market, one of direct-to-consumer sales.
As with so many deals, this one was motivated by excess capital accumulation. As a Houston Chronicle article ("Acquisition to put Koch in Limelight," 11/14/2005) notes:
Koch, based in Wichita, Kan., had a lot of cash on hand from its refining operations and the sale this year of some natural gas properties, and it was looking for acquisitions.
Analysts see one big advantage to having Georgia-Pacific under the direction of an aggressive private company. The management will be allowed to think long term, as it need not worry about pleasing Wall Street each quarter. That will allow for major investment in technology and in global expansion. Koch has a history of holding onto, and improving, the assets it buys. It reinvests an astonishing 90% of profits back into the subsidiaries.
5:30:59 PM 
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