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Deltic Timber Shares Spike as Filing Reports Buyout Interest

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Shares of Deltic Timber Corp. of El Dorado hit a new 52-week high Wednesday after a filing said the timber and real estate firm had been “approached by multiple parties interested in merging with or acquiring” the company.

In a Schedule 13D filing with the U.S. Securities and Exchange Commission, Southeastern Asset Management Inc. of Memphis said potential suitors had approached it and Deltic about a deal, and that it believes Deltic has hired a financial adviser.

Deltic shares (NYSE: DEL) rose on the news, hitting a new peak of $85.49 on Wednesday before closing at $82.51, up 5.5 percent from the previous day.

“We are switching from a filing on a 13G to a 13D because it is our understanding based on conversations with Deltic’s senior management and other parties that Deltic has hired a financial adviser but refuses to enter into substantive negotiations with these potential partners that are willing to pay a price for Deltic in excess of current trading levels,” Southeastern said in the filing.

Southeastern owns a 15 percent stake Deltic. It has previously filed ownership statements under Schedule 13G. Southeastern said switching to 13D allows it “to be more active in corporate governance and management” and able “to enter into discussions with third parties concerning proposed corporate transactions of a significant nature.”

In a statement filed Wednesday afternoon, Deltic said it “maintains an open dialogue with all shareholders and values their input” and has “met and spoken with Southeastern on a number of occasions to discuss their ideas.”

“Deltic’s strategy is to continue to capitalize on improving housing and wood products markets. The company’s assets are well positioned to benefit from increasing demand for southern yellow pine logs and lumber,” the company said. “Further, its strong balance sheet provides the flexibility to extract maximum value from its timberland, real estate and manufacturing operations.

“Deltic’s Board of Directors is committed to acting in the best interests of the company and its shareholders, and regularly reviews its strategic priorities and opportunities to enhance value.”

Deltic said Davis Polk & Wardwell LLP of New York is serving as its legal adviser, and Goldman Sachs & Co. of New York is its financial adviser.

In its filing, Southeastern listed the benefits it thinks a combination of Deltic and publicly traded timber real estate investment trust (REIT) would yield for shareholders, including a dividend increase five times the current level; geographic diversity and “greater harvest flexibility” beyond the company’s base in the Arkansas and Louisiana timberlands; “the ability to improve operations at and potentially monetize Deltic’s manufacturing assets”; and getting outside real estate development expertise “for Deltic’s under-monetized” acreage.

Southeastern also cited an opportunities for “superior, experienced corporate leadership that would obviate the need to hire a new” chief executive officer.

Ray Dillon, Deltic’s CEO for 13 years, retired from the company in October, and its board of directors named D. Mark Leland as an interim replacement. While Dillon’s departure was seen at the time as surprising and sudden, Leland praised his predecessor in an October earnings call.

“He leaves the company operating well and in good shape,” Leland said. “I was honored when the board asked me to step in as interim CEO to lead the company during this transition. Deltic has a great set of assets and a solid team of employees.”

Deltic, a spinoff of publicly traded Murphy Oil Corp. of El Dorado, is scheduled to report fourth-quarter and fiscal 2016 earnings before the market opens on Friday and pay a 10-cent per share dividend on March 2.

In October, the company reported third-quarter net income of $1.5 million, or 12 cents per share, up from $100,000 for the third quarter of 2015. It reported $53.5 million in net sales, up from $50.1 million for the same quarter last year.

Deltic credited its manufacturing segment for the improvements, with average lumber prices up by 17 percent compared with a year earlier. The manufacturing segment reported operating income of $5.7 million for the quarter compared to $2 million for the same period last year. But the company’s real estate segment reported an operating loss of $200,000 for the third quarter, just as it did in the same quarter of 2015.

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