Company Town Threatened

By Ruthanne Cecil – Country Activist, November 1985

The people of Scotia have had the rug pulled out from under them this month, and no amount of undoing what’s been done is going to put it back. The corporate “raider” Charles Hurwitz probably didn’t think too much about the three generations of families living in Scotia, renting from their employer Pacific Lumber, when he offered PL’s shareholders a deal too sweet for many of them to refuse. He prob­ably didn’t think about the town, the people, or the trees, because he was too busy thinking about the $1.5 billion worth of a company he was about to get for a mere $834 million. If he thought about the trees at all, he probably thought about board feet, and dollars, and land values.

The people of Scotia are probably thinking about all this, but mainly about the dream they thought would last forever, and how the fabric of that dream has been exposed for what it really is—neither security or prosperity for perpetuity, but ra­ther the inse­curity of being owned and controlled by another. Pacific Lumber has always been a gentle patriarchy, but this month PL’s own management sold the town and the mill down the river.

The Company Town

Pacific Lumber Company, and the town of Scotia, was capitalized in 1869 by MacPherson and We­ther­bee, for a total of $750,000. The Murphy family ac­quired control after a few years, and an early Murphy named the town after his Nova Scotia homeland. It remains as one of the last company towns in Cali­fornia.

The automobile is probably one of the main reasons for the demise of the company town, which because of isolation required the stores, housing, bars, schools, hospitals, etc. “Bit by bit the compa­nies began to divest themselves of these ex­tra­curricular activities. So the company towns be­gan to get smaller and smaller, in many instances being shut down completely. Homes originally built for the workers and executives were sold to their employees; stores and shops either discontinued or leased or sold to private parties.” Even in Scotia most of the businesses are now private, although PL owns the buildings.

“After he has put in ninety days on his mill job, he can get on the list to move into Sco­tia, where a comfortable one bedroom company bungalow, with a garden and a lawn on a quiet residential street rents from under $60 a month (1971). Water and sewage and gar­bage removal are free. Every five to seven years, the com­pany will repaint his house, in­side and out, free. As he moves up in the com­pany, he can move to a large house. He has good accident and health coverage, and a choice of a pension plan or all investment program…If his son or daughter qualifies for a four-year-college, he or she will receive a thousand-dollar scholarship from the com­pany.”

“If he chooses to reject the moderate’s course, if he is frequently absent from work, guilty of drunkenness, fighting or reckless driving, if he is an offensive neighbor, mi­streats his family, or gets himself heavily into debt, he will feel the pull of the company reins. A man who has applied for a house in Scotia may be kept waiting six months, a year, or for­ever, because of his behavior; a man living in a company house, who fails to give the yard a minimum of care, may find a company garden crew coming by to cut his lawn and weed his flowers for him, a ser­vice for which he will be billed. The pressure is subtle, but firm.”

“…Pacific Lumber deducts eighty-five dollars a month from his check for rent, wa­ter and garbage. He pays no personal prop­erty tax. When something goes wrong with his house­hold plumbing, if one of the kids breaks a win­dow or the electricity goes out...just calls the company plumbing shop or the carpentry shop or the electrical shop, a man is sent out promptly, and there is no bill...”

The town’s population is about 1,000, and has been that for most of this century. There is a staff of nearly 1,000 at the Scotia mill, about a third of who live in the town:

“How many of you would like to live in Scotia and: work for P-L when you grow up?” asks a teacher…“Nearly all the boys raise their hands. And so do half the girls.”

“How many of you would like to live in Scotia and: work for P-L when you grow up?” asks a teacher…“Nearly all the boys raise their hands. And so do half the girls.”

“They don’t believe anything could ever change. Hell, it’s been that way to most fami­lies for two or three genera­tions. What they don’t know is that P-L could fold tomor­row.”

“Here, when a man retires, he faces the loss not only of his work, but of his house, his community, and the whole controlling in­flu­ence of his life.” A few retired people have stayed on, but the pressure to move is great…[1]

Stanwood Murphy, president of Pacific Lumber in 1971 when the above book was compiled, had this to say about his company town:

“We’re a paternalistic company. I know that’s a dirty word, but it’s accurate. We lose money on the town. We figure it’s worth it, to keep a good crew here.”

What P-L is Worth

Pacific Lumber owns about 193,000 acres of tim­berlands in Northern California. About 145,000 acres of that is redwood, and the rest is Douglas fir. By our estimates, only 12,000 acres of old growth redwood is left, and that represents 40% of all re­maining old growth. PL carries timberlands on its books at cost—$34 mil­lion, or $176 per acre. But the land is worth $25,000 per acre of old growth, and $1,000 per acre for new growth.

Pacific pays out a large chunk of its value to stockholders. In 1984, dividends equaled 61% of net income. The company diver­sified in the early 1970’s, and is now the leading producer of both gas and plasma cutting and welding equipment. This portion of the business contributed 58% of PL sales and 46% of its operat­ing income in 1984.

Of its lumber production, the split is currently 30% non-red­wood; 35% old-growth redwood; and 35% residual or younger growth redwood.

Timberland is worth $1 billion, according to some estimates, but this may be high. Cutting and welding is worth $250 million, and then there’s 3,400 acres of Sacramento valley farmland, a down­town San Francisco headquarters building, 3 saw­mills, and 274 homes.

Hostile Takeover

Early in October, Maxxam Group, Inc, offered to buyout PL shareholders for $38.50 a share.[2] This was rejected, and on Octo­ber 9, 1985 the PL Board filed suit, charging that the offer was inadequate, that Charles Hurwitz was unable to raise the money, and that he was “a notorious takeover artist”.[3] Max­xam’s Hurwitz countersued P-L executives for try­ing to block his offer. He claimed “executives had breached their fiduciary duties by gua­ranteeing themselves a share of an estimated $60 million in sur­plus assets in the company retirement fund.”

Following this, PL officers and directors hud­dled with Hur­witz for an emergency weekend meeting October 19-20, 1985 and made a sweet deal for themselves, according to a suit filed later. They came out and announced on October 22, 1985 the takeover of the management of Pacific Lumber by Maxxam, for $40 a share…

Townspeople Angry

For the people of Scotia, the town, the houses, their entire lives for three generations, had just been sold out from under them. The reaction was one of an­ger, dismay, and uncertainty. Both the new and the old company failed to reassure the workers at first. Fear that the plant would shut down, with 800 jobs lost, was foremost for a lot of people.

A 10/24/85 Times Standard recorded a number of Scotia resi­dents and workers who refused to identify themselves:

“Just last week they vowed to fight the takeo­ver and even had a lawsuit against Maxxam …Why the sudden turna­round?”

“I feel we’ve been sold down the tubes…and there’s not a damn thing we can do about it but wait and see what hap­pens.” [4]

The planned takeover has angered some sharehold­ers who feel the offer falls far below P-L’s actual value, which some analysts put at $1.5 billion. They “feel betrayed by management which they thought had a family-like relationship with share-holders and employees alike,” according to the San Francisco Ex­aminer (10/27/85). “Some employees and large stockholders feel they have been raped thoroughly, but legally.”[5]

Future Threatened

All fear that the yearly cut will be increased or tim­berland sold off to pay the large takeover debt of the new owners. “Those guys are going to go in and haul down all that redwood timber in about 10 mi­nutes” said one P-L director.

Even P-L President Gene Elam, an apologist for the take-over, confirms this fear, when he ex­plains there will be more jobs, not fewer, in Hum­boldt, because they will have an increased em­phasis on cutting and selling more lumber. “We don’t think em­ployees have any reason to worry about their jobs. In order to service the buyout debt, there’s going be more work, not less.”[6] (For a while, Mr. Elam, and then what?)

Environmentalists worry especially, because PL owns from 40-50% of the remaining old-growth timber held privately. North coast Environmental Center’s Tim McKay states “They are the most sta­ble lumber company in our region, and they are about to go into liquidation-of­assets mode. It may be the last boom in the boom-and-bust history of Humboldt County.” funds “sub­stantially in excess” of P-L’s current profits to pay off the pur­chase debt, so they are “considering selling P-L’s cutting and welding sub­sidiary and increasing the company’s annual lumber production.”

But boosting lumber production may only flood the market with high-grade redwood and de­press prices further than they are now, leading to the need to cut more and more…

McCloud – A Twin Town?[7]

McCloud, at the foot of Mt. Shasta in Siskiyou County, with a population of about 4,000 was, along with Scotia, one of the last of the “company towns”.

In 1979 when its only mill closed, there was no worker pro­tection program, so the people of McCloud felt the impacts even more drastically than the workers in the redwood region who were pro­tected when Redwood National Park expanded. Un­em­ployment jumped to 27% in Siskiyou County.

Before, during, and after the shutdown of the mill town of McCloud, Ralph Miranda was business agent for the mill’s union local of International Woodworkers of America. He tells this story, which may parallel Scotia’s in more ways than many would hope: 

The town, the mill, the timberland, and the rail­road all be­longed to the McCloud River Com­pany. In 1960, they sold the town and the real estate to speculator John Gailbraith. The same year, they sold the mill, the 60,000 acres of timberland, and the McCloud River Railway to U.S. Plywood, for $48 million.

In the early 60’s, Gailbraith sold the town homes on an indi­vidual basis for between $1,500 and $7,000. The prior renters, mostly millworkers, had the first option to buy, and a lot of them bought. Mortgages were about double what rent had been…an increase from $35 to about $70 per month. Sometime later, U.S. Plywood bought a mill in Anderson, a nearby town. The McCloud opera­tion was carrying the Anderson operation. A lot of the cost of equipment was being charged to McCloud. The cost of shipping timber from McCloud to An­derson was charged to McCloud. They deliberately wanted McCloud shut down.

They’ve taken almost the last of the timber. They started to overcut old growth, and older second growth (yellow pine and some Doug fir). The old growth cedar was sold to P&M Lumber. The 60,000 acres is pretty well depleted now. Just this past year (1984) they shut down the logging crews and are subcontracting out the last of the work non-union.

In 1977 Champion International bought out U.S. Plywood. In January 1979 there were 5,000 em­ployees at Champion’s Building Products mill, the only major employer in McCloud. During 1979 they reduced the workforce by 100 people, and then in December 1979 they shut the mill down com­pletely, with only one day’s notice to many of the 400 re­maining workers.

Since the Shutdown

The town has gone through a major loss of popula­tion. For 1-2 years unemployment was 50 to 75%. People couldn’t sell their homes. Businesses and developers took advantage of the low prices, bought land and built cheap housing. Many low-income people have moved in, even without jobs, because of the low-cost housing.

The mortgage crisis was mainly felt by those who had bought their homes during the last ten years before the closing, paying $25,000 to $40,000 for their homes. Those who had bought in the early 60’s from Gailbraith had low payments, but the late­comers were hurt bad.

The millworkers and timber workers of McCloud follow the timber around, further from home, but wages are going down, often $2-$3 per hour less. They’ve gone to other mills, but they face strikes, curtailments, and in general, harassment.

1983 and 1984 you saw a lot of food lines and giveaways, and a real community effort to help pay the food and fuel bills.

Right after the closure, within a few weeks, there were several heart attacks. Many folks talked of violence and suicide. Violence did increase—bar fights and such. 1979 was a tough year—you were no good if you still had a job—because of the jeal­ousy…

There are few prospects for McCloud. One molding com­pany moved in, and employs 25 people. P & M bought the mill, and now employs only 80. Champion kept logging until 1985, but now the woods crews are shut down. There’s hope for the new ski bowl and lift…a spark of hope. A new bank—Timberline Bank—opened. (Bank of Amer­ica closed last year.) They bought the old hotel. And there’s restaurants and bed and breakfasts starting up. I guess tourism and skiing, and the U.S. Forest Ser­vice, provide the only hope…

Sustained Yield, or a Slow Death?

Pacific Lumber has been praised over the years for its “perpetual sustained­yield basis” forestry prac­tices. But what is really hap­pening out there on those 193,000 acres may be less idealistic than it sounds:

 “Cruising through the woods on foot, a com­pany forester picks out the mature trees and daubs the trees to be cut with white paint, usually amounting to about 70%[8] of a redwood stand. In theory, the remaining trees, maturing faster in the unobstructed light, and seeding new trees in the ex­posed mineral soil, will keep the company sup­plied with redwood logs from its own lands in per­petuity. In practice, perpetuity in the redwoods may be as short as twenty years—about as long as Pa­cific Lumber can ex­pect to be logging virgin growth.” As this statement was written in 1971, twenty years would take us to 1991, just six years away…

Larry McCollum, P-L’s forest manager at the time the book was written, stated to the author that the “company has about forty thousand acres of virgin growth left and is logging at about two thou­sand acres a year.” Then there are about fifty thou­sand acres of residual growth, the trees left over from the first time around. “When the existing vir­gin stands have been selectively cut in twenty (read six) years, there will be a residual base of two bil­lion board feet, another thirty years.”[9]

If these figures are correct, the value of the cur­rent standing timber may be much lower than the figures the newspapers are throwing around this month. If only 40,000 acres of old growth was left in 1971, and they’ve been cutting 2,000 year since then, there should only be 12,000 acres of old growth left. A San Fran­cisco Chronicle business section article of September 16, 1985, a month before the takeover, stated “the land is worth by estimates $25,000 per acre with old growth and $1,000 per acre with new growth…and “the timber alone is worth $1 bil­lion…” The figure may be closer to half that.

This would help to explain what former P-L traffic manager Stanley Parker, in a 10/24/85 state­ment to the Times Standard, meant: “I’m con­vinced company officials made a strong effort to find another buyer who would retain the programs of looking to the future...They probably failed be­cause there isn’t that much value in the company’s stand­ing timber as you might think”…[10]

It might also explain what Gene Elam, current President and Chief Executive Officer of P-L, meant when he said to the Times Standard on No­vember 6: the company has “talked to more than 100 potential ‘white knights’ who might be inter­ested in buying PL, without success”…[11]

Why shop for a buyer if you don’t want to sell? Why not create the myth of inflated timber value? Why not abandon a sinking airship, when someone hands you an expensive golden parachute? Why not sell a pig in a poke, and keep the sustained yield myth alive long enough to sell the homes to the worker/renters for a quick sweet profit, a la McCloud?

Stockholders Fight Back

The Murphy clan and other stockholders have at­tempted a series of lawsuits to block the takeover action. The first suit, filed by three of the Murphys was dismissed in San Francisco by a federal judge, but a class action suit in Humboldt Superior Court was granted a temporary restraining order by Judge John Buffington, and hearing on the facts was set for November 25, 1985. Since the Maxxam offer was scheduled to expire on November 8, 1985 it was extended until the hearing, but the delay may be enough to defeat the takeover, if Maxxam’s poten­tial financiers decide to get cold feet. Both of these judges’ decisions have been appealed, so further judicial activity is still possible this month.

What Happens Next

Even if the Murphys and others are successful in defeating the takeover bid, things will never be quite the same in Scotia. Com-fort, security, and trust have been shattered, and citizens have found them­selves facing two corporate giants, battling before their very eyes over their future, and the future of their children.

It has not been a pretty battle, and the people of Scotia have faced it alone, without any form of or­ganized voice to the rest of the world—neither a community organization nor a labor union. McCloud at least had a union. The people of Scotia may breathe a sigh of relief soon, but they aren’t as likely to trust P-L manage­ment as they did a few short weeks ago, to take care of their fu­tures. It is rumored that Gene Elam’s effigy was hung in front of one of the buildings in Scotia a week or so ago. Things like that are not easily forgotten, by either side.

Besides, the virgin timber is almost cut, and the pride of the lumber industry is beginning to wear thin. The myth of the forest that lasts forever is not too different from the one about the goose and the golden egg. Any really good forester can tell you the difference between a 70% selective cut and a 10-30% selective cut, and the difference between even-age management and all-age management. The dif­ference is money, of course, and time. And not kill­ing the goose.

Footnotes:

[1] Wilkerson, Hugh and John Van der Zee; Life in the Peace Zone: An American Company Town, New York; MacMillian, 1971. [Footnote in original article].

[2] “P-L Agrees to Buyout Deal; New York Firm’s Offer of $40-a-Share Accepted”, by Lewis Clevenger, Eureka Times-Standard, October 23, 1985.

[3] “Pacific Lumber Deal Blasted; Shareholders May File Suit”, UPI wire reprinted in the Eureka Times-Standard, Oct. 26, 1985 and “Pacific Lumber Sale Fells a Tra­dition”, by John Markoff, San Francisco Examiner, Oct. 27, 1985

[4] “P-L Employees Take Merger News Hard”, by Lewis Cleven­ger, Eureka Times-Standard, October 24, 1985.

[5] John Markoff, op. cit..

[6] “Merger Would Create Jobs, P-L President Says”, Eureka Times-Standard, Octo­ber 31, 1985.

[7] For more details, see “McCloud, California”, Hard Times, May 1981.

[8] Emphasis in the original.

[9] Wilkerson and Van der Zee. [Footnote in original article].

[10] Clevenger, op. cit.

[11] “Company President Defends Agreement Reached By Direc­tors, by Lewis Clevenger”, Eureka Times-Standard, November 6, 1985;