March 31st 2008

By Marshall Kilduff
The San Francisco Chronicle
March 31, 2008

Supply your own punch-line: "Two governors, a senator, a billionaire and a judge walk into a bar."

That's the set-up for a messy and unfinished story in tree country. These lofty figures are players in the near-billion-dollar bankruptcy of the world's largest redwood company, Pacific Lumber.

The case has dragged on for a year, as its present owner, the Houston-based Maxxam conglomerate, shuffles the deck for a way to hang onto its 200,000 acres of trees along California's Eel River and Humboldt County coastline.

But the $800 million in bonds used to fuel Maxxam's purchase of the timber company in 1986 are way overdue. On April 8, the 100-year old firm faces the bankruptcy music in a Corpus Christi, Texas, courtroom near Maxxam's homebase.

Winning this venue could be the firm's only victory. That's because Pacific Lumber has taken on enormous symbolic and political significance. Back in 1998, Sen. Dianne Feinstein and Gov. Pete Wilson played leading roles in a $480 million buyout of nearly 10,000 acres of primeval, 300-foot redwoods that Maxxam was considering for the chainsaw. The Headwaters deal carried a second crucial part: a requirement that Maxxam obey strict timber-cutting policies on its remaining land. Ever since, the company has blamed these strictures for driving it onto the financial rocks.

Fast forward to now and, sure enough, the same cast is showing up at Pacific Lumber's bedside, along with a few newcomers. Feinstein has written a crisp note to the faraway Texas judge, Richard Schmidt, reminding him of the deal's sanctity and the firm's economic importance. Wilson, in quiet retirement since leaving office in 1998, signed on last week as point man for the unhappy bondholders, who want to take the company from Maxxam and find a new buyer. Wilson's mission: convince the judge that auctioning off the tree stands won't conflict with good-forestry pledges that go with the land.

Also edging to the front is greener-than-thou Gov. Arnold Schwarzenegger. On March 19, some 30 state officials from outdoors agencies such as Fish and Game and Forestry and Fire Prevention along with lawyers from the Attorney General's office invited the bankruptcy participants to give 90-minute summations of their plans. The implied threat: If you want Arnold's blessing before Judge Schmidt, then you'd better show up and tell us why.

Besides Maxxam and the bondholders, there's a third big player: Gap clothing chain founder Donald Fisher, billionaire philanthropist, prominent Republican donor and - of all things - owner of the Mendocino Redwood Company, next door to Pacific Lumber. Not to be outdone, the Fisher team has taken out newspaper ads, rented meeting rooms for presentations, and sweet-talked every willing listener in a flannel shirt to back its plan.

The Fisher company wants to buy Pacific Lumber for the fire-sale price of $500 million and promises to abide by even stricter tree-cut standards. It's tossing in another crowd-pleaser in depressed timber country: a pledge to operate a major timber mill and pay back scores of little-guy creditors owed by Pacific Lumber.

With wood prices in the dumper because of a dismal housing market, why would anyone buy up more timber land? Maybe because the Fisher purchase would make the clan one of the largest landowners along the north coast, and certainly the biggest source of redwood on Earth. One tidbit: the litigious Environmental Protection Information Center, which has battled Maxxam for years, is backing the Fisher bid, saying its timber-cutting record is superior.

For Gov. Schwarzenegger, it must be nervous time. He has fellow moderate Republican Wilson beseeching him as he mulls over a post-Sacramento future, possibly a Senate run in two years. But then there's Fisher, a reliable ally who's filled his coffers in the past. Casting worried eyes from Texas is Judge Schmidt, who would dearly like some guidance in getting this mess off his plate. Maybe they all should walk into that bar.