Weyerhaeuser (WY - Get Report) has agreed to acquire Plum Creek Timber (PCL) in an $8.4 billion deal that would create one of the largest private owners of timberland in the United States.

Terms of the deal call for Federal Way, Wash.-based Weyerhaeuser to issue 1.6 shares of its stock for each share of Plum Creek, or about $48.64 per share based on Friday closing prices. The companies said that the fixed exchange ratio provides an implied premium of 13.8% to Plum Creek's 30-trading-day volume-weighted average, with Plum Creek holders owning about 35% of the combination post-close.

Plum Creek, based 20 miles north in Seattle, owns more than six million acres of timberland in 19 states as well as wood product mills in the Northwest. The merged Weyerhaeuser would be a $23 billion timber REIT with more than 13 million acres of timberland, ranking it as one of the nation's largest landowners.

"This new company will create tremendous benefit for shareholders as we drive value through shared best practices, economies of scale, cost synergies, operational excellence and disciplined capital allocation," Weyerhaeuser CEO Doyle R. Simons said in a statement.

Post-deal, Simons would remain in his current role, while Plum Creek CEO Rick R. Holley would become non-executive chairman. Weyerhaeuser's board post-deal would have 13 members, with eight coming from Weyerhaeuser and five from Plum Creek.

The companies said that they believe they can extract about $100 million in annual costs through the transaction, and announced a $2.5 billion post-close share repurchase.

Holley in a statement said that "the breadth and diversity of our combined land and timber assets uniquely position the new company to capitalize fully on the improving housing market, continue to capture higher and better use land values across the combined portfolio, and create additional opportunities to build lasting value."

Separately Monday, Weyerhaeuser said it would explore options for its cellulose fibers business including a potential sale or spinoff of the unit. Weyerhaeuser cellulose fiber includes five pulp mills, two modified fiber mills, one liquid packaging board facility and a publishing papers joint venture facility.

Cellulose fibers are used in products including textiles, paper and diapers because of their strength and ability to absorb water.

Simons said that Weyerhaeuser has worked in recent years to improve the performance of the unit, saying "we believe now is the right time to evaluate all options to ensure the best long-term results for this business and at the same time create the most value for our shareholders by further focusing our portfolio."

This would be Weyerhaeuser's second recent spinoff. Last year the company spun its Weyerhaeuser Real Estate unit in a combination with home builder TRI Pointe Homes (TPH - Get Report) of Irvine, Calif.

Morgan Stanley's Joe Rault provided financial advice to the buyer. Cravath, Swaine & Moore's Richard Hall, Erik R. Tavzel, Eric W. Hilfers, Michael E. Mariani and Matthew Cantor provided legal advice to Weyerhaeuser. Devin Stockfish heads the internal legal team at Weyerhaeuser.                

Shearman & Sterling provided legal counsel to Morgan Stanley, with a team that included Rob Masella, John Marzulli and Michael Dockery.

Goldman Sachs and Bank of America/Merrill Lynch are working for Plum Creek, with Skadden, Arps, Slate, Meagher & Flom's Leif King and Kenton King leading a team that served as legal counsel. The Skadden team also included Gregg Noel, Jonathan Ko, Edward Gonzalez, Joe Yaffe, Jason Tomita, Alessandra Murata and George Fatheree.