The Plywood Prince

The C. D. Johnson Lumber Corp., one of the biggest and most profitable in the Northwest, had a vexatious problem: too much cash on hand and more profits pouring in from its huge timber stands. If the $6,375,000 in cash and Government bonds in the company till was paid out in dividends to the Johnson family, which controlled the company, most would go for income taxes. The Johnsons talked their problem over with another lumberman, 48-year-old Owen Cheatham, president of the Georgia-Pacific Plywood Co. Cheatham had worries also.

Since war's end, Georgia-Pacific has boosted sales from $13 million to an estimated $65 million this year, and has become the nation's biggest plywood producer.* But it owned little timberland, thus was afraid of being caught in a price squeeze in purchasing its raw material. This week Georgia-Pacific's Cheatham found a neat solution to the problems of both companies. He bought out the Johnson company lock, stock & barrel stave for $16.8 million.

It was a good deal for both parties. Cheatham paid the Johnsons and other stockholders $80 a share for stock which was last bid over the counter in October at $42. The Johnsons will pay only a 25% capital-gains tax on profits from the sale. Georgia-Pacific got nearly 1 billion feet of timber worth $24 million at current market prices. It will also take over the Johnson company's excess-profits tax base of $2,000,000, will thus be able to keep a bigger chunk of future profits. Better still, Georgia-Pacific picked up the $6,375,000 in cash and bonds in the Johnson company's till, thus cutting its actual outlay by a third.

No Loss. Until five years ago, Georgia-Pacific wasn't making any plywood at all. It was merely a lumber company known as the Georgia Hardwood Lumber Co. which Owen Cheatham had started 20 years ago in a tiny Augusta, Ga. bungalow. After he graduated from a military academy, young Cheatham spent a few years learning the lumber business in several small companies, before he started Georgia Hardwood with $6,000 of his own and $12,000 borrowed from friends. A crack salesman, Cheatham sold $250,000 in lumber the first year, netted $24,000. The company has made money in every year since.

Cheatham opened sales branches in 15 countries, soon was selling 50% of his lumber abroad. During the war, he picked up four sawmills at sawdust-cheap prices, and was ready with his own lumber supplies when World War II ended. By 1946, he had annual sales of $13 million, and a young management raring to expand. The booming plywood business seemed just the thing.

No Gamble. He put out his first stock issue and bought a plywood company in the Northwest. Then he borrowed $2,500,000, got control of three more, and changed the company's name. In two years, sales quadrupled to $45 million.

In 1949, Georgia-Pacific ran into trouble. An earthquake in the Northwest did $250,000 worth of damage to its plywood plants, a price war cost it still more, and profits plummeted 90%. But Cheatham went right on picking up bargains with surplus cash. He bought a $2,000,000 plywood plant for the distress price of $300,000, snagged the Acme Door Corp. for less than its net asset value. It now accounts for 5% of all U.S. sales of wooden doors.

Cautious competitors in the industry, eying the recent slump of the plywood market, say that Cheatham may be riding for a fall again. They think the productive capacity of the plywood industry is overexpanded. Cheatham isn't worried. The recent glut, says he, was just a temporary condition caused by a Government promise last fall to buy 30% of the industry's production for defense. Plywood makers went on a seven-day week, and when no Government orders developed, inventories piled up. Prices dropped 15% and production was cut in half. Last week production was climbing back to normal again (sales were 50% above output), and Cheatham expects Georgia-Pacific to set new records next year.

One reason for this optimism is the company's new plastic-coated plywood, "GPX," which already accounts for 10% of sales. President Cheatham thinks that his GPX, which can be used for everything from outside walls of houses to concrete pouring forms, will capture a big chunk of the market. Says Cheatham: "People are lining up to buy plywood now. We just want to make sure they stay in our line."

*And second as a plywood seller only to U.S. Plywood Corp. (TIME, Sept. 25, 1950), which is also a jobber.

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