Plum Creek Timber (NYSE: PCL ) is diversifying even further into gravel.
On Wednesday, the forest products company announced that it has signed an agreement expanding its relationship with rock products specialist Vulcan Materials Company (NYSE: VMC ) , agreeing to pay $154 million for an interest in the production of 255 million tons of rock from four Vulcan quarries located in the metro Atlanta market.
In exchange for its investment, Plum Creek says it will begin receiving royalties from sales of crushed stone from the quarries, and will continue receiving such royalties for the next 25 years. In a statement describing the deal, Plum Creek CEO Rick Holley explained: "This transaction is a unique opportunity for Plum Creek to increase our interest in construction material production in the attractive southeastern markets. These quarries are exceptionally well positioned for the recovery in the infrastructure, industrial and housing sectors in and around Atlanta."
Close to Atlanta the quarries may be, but as unusual as it may sound for a lumber company to be buying an interest in rock, the transaction is in fact not unique at all. In January, Plum Creek signed a similar deal with Vulcan, paying $75 million for an interest in 144 million tons of crushed stone production from four different quarries serving the markets in Greenville, and Spartanburg, S.C.
Vulcan said Wednesday that the latest deal allows it to "unlock long-term value in these quarries, tax efficiently, while maintaining full ownership and operational control of the quarries, fixed assets, and land. A pre-tax gain of $154 million, less modest transaction expenses, will be recognized over the life of the transaction."