In my sum-of-parts valuation for forest products giant Weyerhaeuser (WY), I suggested a conservative valuation of $5 billion for the company’s Containerboard, Packaging, and Recycling (CPBR) unit. Turns out I wasn’t too far off. In the early morning hours today, Weyerhaeuser announced it was selling that segment of its business to International Paper (IP) for $6 billion in cash.

My first reaction is that this deal makes sense for both parties and seems like the most natural fit between parties. A step like this makes it more clear that Weyerhaeuser is moving toward being a pure-play on its timberland assets, as CEO Steven Rogel implied, saying the company’s future “begins with the trees and the land, and our outstanding stewardship of these resources.” In my original analysis, I noted that International Paper is involved in packaging operations itself, and it earns much better returns than Weyerhaeuser in those operations - so hopefully for IP shareholders, the company can squeeze further efficiencies out of Weyerhaeuser’s CPBR assets and bring them up to par.

WY looks set to open up modestly on a day that is going to be dominated by a what-the-hell feeling following news that Bear Stearns (BSC) $2/share takeout from J.P. Morgan (JPM) - our takes here and here. This price for the CPBR unit looks to add approximately $5/share to my original pre-tax breakup value of Weyerhauser, and has a few other positive consequences:

-Levers the company more toward an early-cycle housing play, not a mid-cycle industrial
-Reduces the debt burden
-Should lower the discount rate the Street uses on valuing future cash flows
-Demonstrates that management can take action in transforming the company

Overall, not bad news by any stretch, and the net result is that I’m starting to warm up to WY.

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