This time the delegation from Koch Industries was dispatched to Atlanta. They arrived at Georgia-Pacific headquarters, one of the largest, most opulent buildings downtown. The Georgia-Pacific tower, at 133 Peachtree Street, rises knifelike into the sky, its sides encased in gleaming red granite that shines in the morning sun. The building projects an image of authority, ego, and power. It would have seemed preposterous, at that moment, that the small team of executives from Wichita would soon take command of the entire building.
One of the Koch executives on the team was Jim Hannan. Within a few years, he would become Georgia-Pacific’s CEO. On that hot summer morning in 2003, however, Hannan was just a guest. Georgia-Pacific invited the Koch team to its headquarters that day because they hoped Koch Industries might buy a small part of the timber company’s business: a set of struggling pulp mills. It was hardly the kind of deal that would make the newspapers.
What wasn’t visible to anyone outside Koch at the time was that Jim Hannan and his team were only a very small piece of a much larger machine inside Koch Industries. They were the landing team for Koch’s Corporate Development Board, which was about to execute a series of corporate takeovers worth more than $25 billion. The board was targeting dysfunctions in the market, places where the public was undervaluing assets that Koch could step in and seize. Georgia-Pacific was one of those undervalued assets. The Delaware corporation DuPont was another one. The distorted, short-term thinking on Wall Street had depressed the value of both companies. Koch had the cash on hand to exploit those mistakes. That’s what Jim Hannan and his team were in Atlanta to do that day.
Hannan, like Steve Packebush, was a prototypical Koch man. He was lean and athletic, with a square jaw and a manner of speech that was utterly earnest, sincere, and laced with unbendable self-confidence. Hannan was educated at a small school, earning a business degree from California State University, East Bay, in Hayward, and worked as an accountant before joining Koch. Then his real education began. He was hired as a finance guy and promoted from division to division, and from job to job. His real training wasn’t in finance per se but in the Koch method of doing business. By 2003, he was a fluent speaker of Market-Based Management. By the time he arrived in Atlanta that day, Hannan had become the chief financial officer of the Koch Minerals division.
Hannan’s presence in the lobby of Georgia-Pacific’s headquarters was even more bizarre than Koch’s presence at the auction of Farmland’s fertilizer plants a few months earlier. Koch’s interest in Farmland could at least be explained by Koch’s ownership of a fertilizer plant and a few ammonia pipelines. There was absolutely no conceivable reason for Hannan and his team to buy the assets of a timber company that would cost several hundred million dollars. Koch Minerals specialized in trading and shipping petroleum, coal, sulfur, and other dry goods. Koch Industries, as a whole, had zero experience in the wood and paper business. Yet here was a team from Koch, having requested an appointment, and having made it abundantly clear that they were ready and able to spend very serious money if Georgia-Pacific was willing to part with a few of its assets.
The team from Koch walked into the spacious lobby at the foot of the Georgia-Pacific tower. The lobby was like a spacious, public mall, with a small coffee shop, a convenience store, and hundreds of well-dressed professionals walking in every direction. Georgia-Pacific was one of the world’s largest wood and paper products companies in the world, with about fifty-five thousand employees spread across the country. The firm owned dozens of giant wood, pulp, and paper mills, and reported $20.3 billion in sales in 2003.
Georgia-Pacific treated the delegation like visiting royalty. The Koch team was scheduled to receive a private investor’s presentation, to be given on the fifty-first floor of the tower, which employees had taken to calling the “Pink Palace” because of its red granite facing.
The fifty-first floor held an almost mythical status within Georgia-Pacific. The top floor was home to the company’s executive suites and the executive dining room. It was easier to get invited to an exclusive cotillion ball in the old-money neighborhoods of Atlanta than it was to get an invitation to the fifty-first floor. Hannan and his team stepped into a special bank of elevators and were ushered upstairs.
When they arrived at the top of the tower, the elevator doors opened onto a wide corridor that was a hushed cocoon of luxury. The hallways were lined with lush rugs, and the walls were appointed with oil paintings that evoked America’s frontiersman past. Hannan and his team walked past china cabinets in the hallways, filled with antiques, and then passed through a set of open doors made from thick, richly colored hardwood with large brass knobs embedded in the center, surrounded by brass etchings that looked like oak leaves, radiating outward. The doorway took the Koch team into Georgia-Pacific’s executive dining room, a large solarium with floor-to-ceiling glass walls that looked out over downtown Atlanta. It felt like the dining room of an elite country club, elevated to Olympian heights. The coffee and food were served on fine china.
Hannan was making mental notes as he looked around at the paintings and china cabinets and other works of art.
These are too lavish, Hannan thought. He would eventually change all that.
After some small talk, the Koch team was given a private investor’s presentation about the pulp mills that Georgia-Pacific had put up for sale. The sale, and Koch’s interest in it, stemmed from deep financial problems that were plaguing Georgia-Pacific. The company had been limping along for years, burdened by debt and a motley collection of different business lines it had purchased during a years-long acquisition spree.
Georgia-Pacific was founded in 1927 and, in its earliest days, was basically just a big lumber yard. The company expanded rapidly over the decades, at one point owning more than six million acres of trees. As American timber companies wiped out the nation’s supply of old-growth timber, Georgia-Pacific was a pioneer in finding replacement products. It figured out how to replace hardwood oak with cheaper material by using special glues to turn soft pine trees into composite products like plywood.
Over time, Georgia-Pacific became a chemical company and started to resemble an oil refining company. It owned big processing plants and bought raw materials (timber instead of crude oil) that it processed into commodity products (plywood rather than gasoline). The company used its profits to buy out competitors during the 1990s. The company’s ambitions turned out to be its undoing. In 2000, Georgia-Pacific bought a tissue-paper company called Fort James, which itself was the creation of a recent merger between two giant tissue-making companies. At the time of the purchase, Georgia-Pacific was already carrying $6.5 billion in debt. It borrowed another $10 billion to buy Fort James. The theory was that the new Georgia-Pacific would control both the timber business and the paper business, controlling the entire supply chain, from forests to paper plates. But the purchase was so lavish and so surprising that even the buyout enthusiasts on Wall Street were put off. Georgia-Pacific’s stock fell after the deal was announced.
Three years later, Georgia-Pacific’s stock price was still struggling. Wall Street analysts just couldn’t figure out how to value a firm that was halfway in the wood products business and halfway in the consumer paper business, two industries that were very different in their particulars and also in their business cycles. Shares of the company bounced around unimpressively, and it was never quite clear how the Fort James purchase was going to deliver strong growth.