Potlatch Corporation has announced that its Board of Directors has unanimously approved the Company’s previously announced plan to pursue a tax-free spin-off of its pulp-based businesses into a publicly-traded company called Clearwater Paper Corporation. The planned spin-off is subject to final Board approval based on regulatory, market and other conditions.

A spin-off will create two stand-alone, publicly-traded entities: a timber Real Estate Investment Trust or REIT, with 1.7 million acres of forestland in Idaho, Minnesota, Wisconsin and Arkansas; and a pulp-based manufacturing company that will include Potlatch’s Consumer Products facilities in Lewiston, Idaho, Las Vegas, Nevada, and Elwood, Illinois, and its Pulp & Paperboard facilities in Lewiston, and Cypress Bend, Arkansas.

The businesses to be spun-off had revenues of approximately $1.2 billion in 2007. Michael J. Covey will remain Chairman, President and CEO of Potlatch. As previously announced, Gordon L. Jones will be President and CEO of Clearwater Paper. Potlatch will remain headquartered in Spokane, Washington, and Clearwater Paper’s headquarters will be based in the Spokane area at a new office location that has not yet been determined.

Mr. Covey said, “After a careful evaluation, our Board determined that separating these distinct businesses is a logical next step for Potlatch in our ongoing efforts to strengthen our businesses and build long-term value for shareholders.

This strategic move will enable shareholders to have a direct stake in two unique companies - an essentially pure-play timber REIT and a solidly positioned pulp-based manufacturing company. This increased transparency will enhance the likelihood that each company will receive appropriate market recognition of its unique performance and potential.

This action also recognizes the inherent diversity of our assets and the opportunities that will be available to both companies as independent businesses.” Covey continued, “This spin-off will enable the management and board of both Potlatch and Clearwater Paper to have a sharper focus on their core businesses.

Additionally, as two standalone entities with sound operations and talented management teams, both companies will be better positioned to manage and grow their businesses, leverage their distinct competitive strengths, attract and retain key employees, and pursue value-creation opportunities such as acquisitions over the long-term.”

Potlatch expects the transaction to be completed during the fourth quarter of 2008, subject to final approval based on regulatory, market, and other conditions.