January 14, 2013
Wausau Paper Corp.100 Paper Place Mosinee, WI 54455Attn: Thomas J. Howatt, Chairman of the Board
cc: Board of Directors, Henry C. Newell
Dear Tom,Starboard Value LP, together with its affiliates, currently owns 14.8% of the outstanding common stock of Wausau Paper Corp. (" Wausau" or the "Company"), making us the Company's largest shareholder. We are writing to you and the Board of Directors (the "Board") to express our surprise and sincere disappointment in your handling of the sequence of events this past Friday that led to the Company's issuance of an after-market press release announcing that it had begun a review of strategic alternatives for the Company's Technical Paper business. As you know, earlier on Friday, we had delivered to you and the Board an open letter, which we informed you we intended to make public shortly thereafter, together with our nomination of three highly-qualified director candidates for election at the Company's 2013 annual meeting of shareholders (the "2013 Annual Meeting"). In this open letter, we reiterated to you that Wausau remains meaningfully undervalued and much more can be done to unlock significant value for the benefit of all shareholders. Specifically, we repeated our continued belief that Wausau should explore a sale of the Company's struggling Technical Paper business in order to focus singularly on its leading and highly valuable Tissue business. We also stated that in order for the Board to fully and fairly evaluate a sale of the Technical Paper business, it must also consider all strategic alternatives, so that it can compare the value that could be realized from a sale of the entire Company against the potential risk-adjusted value of selling the Technical Paper business and keeping the Tissue business as a stand-alone public company. As you know, this is not the first occasion on which we communicated our thoughts to you on exploring a sale of the Technical Paper business or the entire Company. Since reaching a settlement agreement with you in February 2012, in accordance with the accompanying standstill, we have communicated only privately with you and the Board regarding our views on how best to maximize shareholder value. Despite that limitation, we have been absolutely clear with you and the rest of the Board, through one private letter and countless conversations, that in order to maximize value for shareholders, the Company needs to either (i) sell the Technical Paper business, focus on the Tissue business, and reduce redundant overhead costs, or (ii) sell the entire Company. We were extremely clear that both of these options should be fully explored. We also explained to you on a number of occasions that if the Company failed to take these actions, we would choose to nominate directors for election at the 2013 Annual Meeting. Unfortunately, despite the continued underperformance of the Technical Paper business and our regular communications with you over the past year, you were unwilling to commit to exploring value maximizing alternatives for either the Technical Paper business or the entire Company. Instead, you have fruitlessly focused on trying to grow revenue in the Technical Paper business, resulting in deteriorating financial performance and substantial losses. Over the last four weeks, with the impending nomination deadline and expiration of our standstill, we have had numerous private discussions with you in order to avoid a proxy contest at the 2013 Annual Meeting. Given that the Company had ignored our repeated advice to explore strategic alternatives, as well as the complete lack of industry experience among the Company's independent Directors (other than the two directors we placed on the Board last year through our settlement), we made it clear that we believed it was necessary to further improve the Board by adding independent directors with substantial industry experience, as well as a shareholder representative. We felt these changes were critical because of our belief that the current Board may be unwilling to follow through on a sale of the Technical Paper business, make sure redundant corporate overhead costs are removed, or explore a sale of the entire Company. We also stated that if we were unable to come to a mutually agreeable resolution that we would be forced to nominate directors once our standstill expired on January 7, 2012. Despite our best efforts, we were unable to come to a reasonable settlement agreement as it became clear that you and the Board were only willing to do the bare minimum of what would possibly be acceptable, instead of objectively considering what is best for the Company and its shareholders. Therefore, we decided on Friday morning to send you a public letter and nominate three highly qualified directors for election at the 2013 Annual Meeting. Upon receiving our letter Friday morning, and within minutes of when we were about to issue a press release, you pleaded for us to hold off from making our letter and press release public, and stated that you would speak to the Board and then call us back later in the day. You led us to believe that you were calling the other members of the Board to discuss our letter and director nominations, in order to determine whether you could make more accommodations to move towards a mutually agreeable settlement prior to us having to disclose our letter and nomination publicly. We were hopeful that we would be able to agree to an amicable resolution to avoid a proxy contest, as we had done last year. You then called us again around 3:00 pm and stated that you were still waiting to hear from a number of Board members and politely asked if it would be okay to call us in a little over an hour. When we finally spoke around 4:45 pm, you informed us that the Board was unwilling to negotiate further and instead the Company would be issuing a press release momentarily disclosing its intention to pursue a sale of the Technical Paper business. As we discussed on that call, we are extremely disappointed in your disingenuous actions to plead with us to not put out a public announcement under the guise of further settlement discussions merely so that you could get ahead of our announcement with your own press release, in which you even use many of the same words from the letter you received from us earlier that morning. While you well know from our numerous conversations that we are generally supportive of a plan to exit the Paper business and focus on Tissue, you also know that any sincere plan to maximize value for the Company needs to include a holistic review of all strategic alternatives. Only then can the Board compare the value that could be realized from selling the entire Company with the risk-adjusted value of selling the Technical Paper business and leaving the Tissue business as a stand-alone public company. Instead, the hasty actions taken by the Board on Friday afternoon to announce the exploration of a sale of the Technical Paper business only after our letter was about to become public, without first fully determining the best course to maximize value for the Company, demonstrates to us that the Board is, once again, only willing to do as little as possible to try and avoid an election contest, rather than do what is in the best interest of its shareholders.
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