UPDATE 1-Plum Creek Timber in $783 million land venture

(Recasts first paragraph, adds terms of deal)

HOUSTON Aug 27 (Reuters) - Plum Creek Timber Co Inc (PCL.N) said on Wednesday it formed a joint venture with Campbell Group LLC and would receive $783 million cash for 454,000 acres of its southern timberlands.

Plum Creek, the largest landowner in the United States, will contribute the timberlands to the joint venture and an investment fund sponsored by Campbell Group will contribute the cash and manage the acreage for production, Plum Creek said.

The timberlands are in Oklahoma, Mississippi, Arkansas, North Carolina, South Carolina and Georgia.

The deal, which values the land at $1,725 per acre, allows Plum Creek to "immediately capture substantially all of the value of these timberlands and to maintain an ongoing interest in their continuing cash flow and potential for growth," Rick Holley, president and chief executive officer of Plum Creek, said in a statement.

Plum Creek, based in Seattle, will use the proceeds to retire debt, it said.

Campbell Group's investors will receive an interest in the joint venture, representing about 91 percent of the joint venture's common equity, the companies said.

The agreement is expected to become effective during the fourth quarter of 2008. (Reporting by Anna Driver in Houston; Editing by Andre Grenon)