<p>Market-based management is more than a business philosophy at Koch Industries Inc., which is poised to become the largest private company in the nation with its proposed purchase of Atlanta-based Georgia Pacific Corp.</p><p>The Wichita-based company makes Market Based Management its blueprint for growth. In fact, MBM, as its employees call it, is so important to the company's operating strategy that it has made it a registered trademark.</p><p>Essentially, MBM is a free market philosophy that encourages employees to think like entrepreneurs and rewards them financially for their initiative.</p><p>"It is a big part of who we are, it is a big part of why we believe we have been successful over the years," said Mary Beth Jarvis, spokeswoman for Koch Industries. "We define success as maximizing long-term value created for customers directly, for shareholders directly and for society as a whole."</p><p>All of Koch Industry's 30,000 employees go through training sessions complete with lectures and exercises on the MBM philosophy. The company has already sent the 55,000 Georgia-Pacific employees background on Koch Industry and its philosophy.</p><p>Serious discussions on the latest acquisition began last month, and the deal has moved more quickly than any previous acquisition, which Koch Industries attributes to the compatibility of the two companies' cultures.</p><p>"We really as Koch employees like to push ourselves through value creation and efficiency _ those are the same watchwords Georgia-Pacific lives by," she said.</p><p>A day after announcing the $13.2 billion acquisition of Georgia-Pacific, Koch Chairman and CEO Charles Koch and Georgia-Pacific CEO A.D. "Pete" Correll spoke to employees at the Georgia Pacific plant via closed circuit television about the sale and Koch's market-based business philosophy.</p><p>A session is planned Tuesday with Georgia-Pacific's top 80 executives to talk more in-depth about Koch and MBM.</p><p>As a private company, Koch contends it can weather volatility better than publicly owned companies that must answer to stockholders.</p><p>To prove its point, the company points to its earlier acquisition in May 2004 of two pulp mills from Georgia Pacific in Brunswick, Ga., and New Augusta, Miss. Since then, the company has reinvested $100 million in those plants, with another $200 million planned, Jarvis said.</p><p>"Those investments would not have been favored by Wall Street under a publicly traded model," she said.</p><p>Koch has historically reinvested as much as 90 percent of its earnings, the company said.</p><p>"It was a seamless acquisition _ it was good for Georgia and Mississippi and good for business," said Mindi Overly, spokeswoman for Koch Cellulose, as the pulp mills are now known.</p><p>The Georgia-Pacific acquisition, the largest in Koch's history, comes about 18 months after it bought Invista BV, a nylon fibers business that makes Lycra and Stainmaster, from DuPont Co. When Koch bought that company it relocated its corporate headquarters to Wichita.</p><p>Unlike Invista, Koch does not plan to relocate the corporate headquarters of Georgia-Pacific nor do any major restructuring, Jarvis said. Georgia-Pacific's culture is more closely matched to Koch's own corporate culture than any other firm Koch has acquired, she said.</p><p>"There is not an eye toward substantially restructuring the business because they are so strong," Jarvis said. "We think they were undervalued in the marketplace."</p><p>The deal has gotten approval from both companies' boards, and calls for Koch to assume $7.8 billion in debt from Georgia-Pacific, which will become a wholly owned subsidiary of Koch. The Koch unit formally acquiring GP plans a cash tender offer this week for Georgia-Pacific, at $48 per share, or about 38.5 percent above its closing price Friday.</p><p>About 51 percent of Georgia-Pacific employees own stock in the company either directly or through their 401K retirement plans, Jarvis said.</p><p>For decades, Koch Industries quietly built a financial empire grounded on the pipeline and refinery holdings. Today the company operates refineries and pipelines, trades commodities and manufactures pulp, paper and fibers.</p><p>It has operations in about 50 countries. With Georgia-Pacific, Koch will have annual revenue of some $80 billion, helping Koch surpass food and farm products maker Cargill Inc. as the nation's largest privately held company.</p>
