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Starboard Delivers Letter To Wausau Board Of Directors

While the Specialty Products business may be profitable today, Wausau has spent a significant amount of capital in that business, and it is unclear how long the business will remain profitable and what additional capital investment may be required to keep the business competitive.  Specifically, the 8% cost of capital threshold that the Company uses for this business seems arbitrary and surprisingly low, especially given the competitive environment and execution risks involved.  Further, Wausau has a history of failing to achieve its financial targets in the Paper segment, as evidenced by the Company's recent admission that its Print & Color franchise had not earned acceptable returns since 2002 and was operating at a significant financial loss prior to its sale.  We therefore seriously question whether continuing to invest in the Specialty Products business, rather than including it as part of a broad strategic alternatives review, is the best use of shareholder capital and management time and attention. 

Further, we believe that Wausau will garner a higher valuation in the public market as a pure-play tissue and towel business given the superior margins and lower risk profile in this business.  To that end, as mentioned above, we believe the Company will be in the best position to maximize shareholder value by pursuing a sale of the Paper segment as a whole, or the entire Company. 

We Believe the Composition of the Wausau Board Could be Greatly Improved

We firmly believe that shareholder representation on the Board is crucial to ensuring impartiality and a clear focus on the best interests of all shareholders.  We are concerned that the current members of the Board collectively lack relevant experience and may have been on the Board too long to view certain strategic and managerial decisions objectively, or to fairly consider alternative perspectives.  We have identified several highly qualified, independent directors with significant and successful experience in the tissue and paper industries who we believe will bring a fresh perspective into the boardroom and who can be extremely helpful in evaluating and executing on initiatives to unlock value at the Company.  We remain open to working with you to reconstitute the Board with individuals capable of critically analyzing important strategic initiatives, such as the potential sale of the Paper segment or the entire Company, and the expansion of the Tissue business into new areas of the away-from-home market. 

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