May 2nd 2008

By Mike Geniella
The Press Democrat
May 2, 2008

Call it a clash of the titans, the Wall Street kind.

Some of the wealthiest names in America emerged as combatants Thursday in a contentious Texas courtroom battle for control of bankrupt Pacific Lumber Co., the tattered but still regal monarch of West Coast timber companies.

The players so far include four billionaires, a super-sized Dallas gambler and Harvard University's endowment fund, the richest in the nation.

Why such keen interest in a bankrupt North Coast timber firm?

Because even with its staggering $714 million debt, Pacific Lumber's 210,000 acres, mill complex and the town of Scotia in southern Humboldt County represent the best there is in big timber country.

"They are premier assets," said a Los Angeles investment analyst.

Pacific Lumber's weeks-long bankruptcy trial in the U.S. District Court in Corpus Christi was to continue today, but any decision appears unlikely. Further hearings are scheduled toward the end of the month.

Going into Thursday's hearing, San Francisco's Fisher family, owner of Ukiah-based Mendocino Redwood Co., and its hedge fund partner appeared to have an edge.

Overnight, Texas financier Charles Hurwitz, the current Pacific Lumber owner who ran the timber firm into bankruptcy after a 22-year reign, and Pacific Lumber executives had signed off on a richer offer by the Fishers and Marathon Structured Finance Fund. In a twist, other company executives who represent subsidiary Scotia Pacific, actual owner of the timberlands, are holding out because they contend the land value is $900 million, far more than what's being offered so far.

Under the new Fisher-Marathon plan, holders of past-due investment bonds would get $530 million in cash, instead of just $175 million and another $325 million in new financing notes. Marathon would take over the town of Scotia as part of its debt settlement with Pacific Lumber.

Late Wednesday the revised plan was seen as a possible breakthrough, perhaps signaling an end to an 18-month old bankruptcy drama.

But in a surprise move Thursday morning, attorneys for holders of the $714 million bonded indebtedness announced that legendary California timberman Archie "Red" Emmerson may join with Texas banker Andrew Beal and Harvard's endowment fund to make an even higher offer.

As envisioned under that plan, Emmerson's Sierra Pacific Industries, California's single largest landowner, would take over the Scotia mill complex operation in partnership with Harvard and Beal. Beal has said he's willing to put up $603 million cash for Pacific Lumber's assets.

Harvard apparently is no newcomer to timber investments.

"It has $5 billion invested in forestry right now," Harvard lawyer Steven Hoort told bankruptcy court Judge Richard Schmidt, according to the Dow Jones Newswires.

But the takeover bid by Mendocino Redwoods, which already owns more than 200,000 acres of timberlands in Mendocino County, and Marathon still has the support of Gov. Arnold Schwarzenegger, North Coast timber industry leaders, environmental groups and state and federal regulators.

Deep pockets, however, have been known to trigger fierce competition.

Brothers William, John, and Robert Fisher are heirs to The Gap fortune founded by parents Doris and Donald Fisher of San Francisco. The Fisher brothers are each worth an estimated $1.4 billion, according to Forbes magazine.

Forbes says Red Emmerson, a Humboldt County native who still wears blue jeans and drives a Chevy pickup, is worth slightly more: $1.5 billion. Emmerson's family owns Sierra Pacific, believed to be the nation's third largest private landowner, with 1.8 million acres of timberlands.

Dallas banker Beal's worth also is an estimated $1.5 billion. And in Texas, Beal's passion for poker is widely known. He's sat down to some of the highest-stakes private games ever played, according to the 2005 book "The Professor, the Banker and the Suicide King."