At January's International Builders' Show in Orlando, the purchasing chief of a top 10 builder stopped by Georgia-Pacific's booth to say hello. It's IBS routine for a purchasing honcho to touch base with suppliers on the show floor, exchange a few pleasantries, and maybe even horse-trade a tidbit or two of information. In Georgia-Pacific's case, the information everybody wants has to do with the building product company's recent acquisition by Koch Industries, and how its eventual absorption into a highly diversified private company might affect home builders. But the guy toting the multimillion dollar checkbook might as well have been some random Orlando homeowner who came to check out the show.
“Unless you wanted to sit and learn about their products, they really weren't saying a whole lot after that,” says the purchasing chief.
When the deal, valued at $13.2 billion in equity and $21 billion after factoring in all G-P debt, was announced in November 2005, it quite naturally caught the attention of builders. After all, in 2004, G-P accounted for 18 percent of total structural panel capacity, 31 percent of all plywood capacity, and 15 percent of gypsum capacity—in North America. The company did $5.5 billion in building products sales, not including its distribution business, which it sold off that year.
Finalized in December, the acquisition came 18 months after Wichita, Kan.-based Koch Forest Products bought into the pulp business by purchasing two G-P pulp mills in May 2004, allowing the company to “acquire the industry knowledge it needed to complete its largest acquisition to date,” as its Web site says. Given that it had already acquired pulp mills, it would appear the company likes that business. But its business interests span an array of industries, from petroleum and minerals to securities and finance, so it's open to speculation as to how “core” its executive management will view its newly adopted building products arm.
Home builders say they haven't heard much about the Koch acquisition, and so they can do little but take a wait-and-see approach. But that doesn't mean they aren't willing to take some educated guesses. What's more, a few are even contemplating moves based on what Georgia-Pacific might do next.
PERHAPS MORE R&D Volume builder purchasing execs' biggest gripe about G-P has been that the company has scrimped on research and development investment into building products. So, the notion goes that with a new driver behind the wheel, there's a possibility that the new regime will see a profit opportunity and infuse much needed cash into building. Former G-P CEO Pete Correll was known as a “paper guy,” as one builder purchasing head put it—in other words, Correll was interested mostly in G-P's consumer products. Correll is staying on only short-term as chairman of the board, “to assist in the transition,” as the acquisition press release says.
Builders reason that the deal could make G-P a stronger partner because, since it will now operate under private ownership, senior managers may more freely invest in longer-term strategies vs. quarter-to-quarter performance goals. Moreover, the acquisition might be an opportunity for new rounds of supply chain dialogue.
“We are always exploring any opportunity to make sure that we get our supply at the right price,” says one national builder purchasing head.
What high-volume sourcing execs would really like is the opportunity to accelerate the discussion about buying direct. “I look at it as, one, let the dust settle over the course of the next 90 days in terms of leadership, and then I'll probably start some high-level dialogue on the opportunity to look at direct sourcing from them,” says another supply chain head.