Any company attempting an acquisition in the forestry products sector risks launching its share price into a free fall, or so it would seem from stock market reactions to recent bids. When UPM-Kymmene (Finland) announced a bid for Champion International (United States) in February 2000, for example, the share price of the would-be acquirer fell by more than 8 percent within a day and its market capitalization fell by $1.2 billion within a week—enough to permit International Paper to challenge the deal. The bids of Stora Enso (Finland) for Consolidated Papers (United States) and of Abitibi-Consolidated (Canada) for Donohue (Canada) met with similar responses (Exhibit 1). Nonetheless, equity analysts and investment bankers continue to recommend consolidation and companies continue to plan acquisitions.

Now, however, the leaders of forestry products companies must rethink their approach to consolidation. Merged companies that use innovative approaches to transform themselves will still be able to unlock substantial value. But companies without such skills might find that the best way to create shareholder value is not to buy assets but to sell them: the take-the-money-and-run approach. And all companies in the industry, whether they buy or sell, must be aware of the predatory moves of...