Posted on: Tuesday, July 27, 2004
OfficeMax owner sells paper division
By Samantha Zee and James Gunsalus
Bloomberg News Service
Boise Cascade Corp. has agreed to sell its paper and timberland assets for $3.7 billion and change its name to OfficeMax Inc., completing its transition from a timber company to the No. 3 office-products retailer.
Boise Cascade, which bought OfficeMax for $1.06 billion in December, is selling its timber and paper assets to Boise Cascade LLC, formed by Chicago-based buyout firm Madison Dearborn Partners LLC. Boise Cascade will retain a 10 percent stake in Boise Cascade LLC once the sale is completed in mid-November.
Chief Executive Officer George Harad, 60, said the sale will fuel the expansion of the office supply business, which should have operating income of $210 million to $240 million this year. Harad closed 45 OfficeMax stores in the first quarter and is cutting debt to compete against Staples Inc., the largest office- supplies retailer.
"OfficeMax is a good franchise but people don't really differentiate between Staples or Office Depot," said Steven Chercover, a forest-products analyst at D.A. Davidson and Co. who has a buy rating on Boise Cascade and doesn't own the stock. "OfficeMax is the leader in business-to-business and direct merchandising. They can build on this by focusing on small- and medium-sized businesses."
In Hawai'i, Boise Cascade owns about 10 retail office supply stores under Hopaco and OfficeMax names. It was unclear whether the Hopaco name would be retained under the trade name change to OfficeMax. A local Hopaco general manager referred the question to an OfficeMax representative in Chicago who could not be reached for comment yesterday.
Harad will become executive chairman of OfficeMax, which will be traded on the New York Stock Exchange under the symbol OMX. Thomas Stephens, former chief executive at MacMillan Bloedel Ltd. and Manville Corp, will be CEO of Boise Cascade LLC, which will remain based in Boise, Idaho.
Shares of Boise Cascade fell 6 cents to $32.99 in New York Stock Exchange composite trading. They have risen 31 percent in the past year.
"The sale is the right decision for the company and at a pretty good price," said Marc Lehmann, who helps oversee $1.4 billion of assets at New York-based Jana Partners LLC, which owns Boise Cascade stock. "The sale doesn't change Boise Cascade's competitive position, but does focus management on one line of business."
Madison Dearborn, which has about $7.7 billion under management, invests in industrial, communications, healthcare, consumer and financial companies. The firm has bought three paper companies: Ireland's Jefferson Smurfit Group Plc; Atlanta-based Riverwood Holding Inc; and Bay State Paper Holding Co. based in Hyde Park, Mass.
"We had a number of alternatives that we evaluated, but on balance we believe this is best for our shareholders," Harad said.
Boise will get about $3.1 billion to $3.2 billion in cash proceeds from the sale, and plans to use $2.2 billion to $2.3 billion of that to reduce debt. The remaining $800 million to $1 billion will be returned to shareholders through stock buybacks, cash dividends, or a combination, the company said in the statement.
The sale of Boise Cascade's paper and timberland assets "allows the company to pay down a lot of debt and accelerate their growth," said Todd Cruse, an analyst for Spokane, Wash.-based ICM Asset Management Inc., who follows the office- supplies industry.
Boise had a second-quarter profit of $50.4 million compared with a net loss of $3.93 million a year earlier. Revenue climbed 76 percent to $3.40 billion, boosted by rising sales of office products. They climbed to $2.01 billion from $905 million.
Staples's first-quarter profit rose fivefold to $125.7 million from a year earlier, when an accounting change reduced earnings by $62 million. Sales increased 12 percent to $3.45 billion as small businesses spent more.
OfficeMax has more than 900 retail stores worldwide, plus 80 distribution centers. Staples operates about 1,600 stores.
Boise's office products head, Chris Milliken, will become president and chief executive officer of OfficeMax. The company's corporate headquarters will be in Itasca, Ill.
An architectural products business and 6,000 acres of timberland weren't included in the sale to Madison Dearborn. Boise Cascade LLC will manage the business.
J.P. Morgan and Lehman Brothers served as financial advisers and provided financing to Madison Dearborn Partners. The firm Kirkland & Ellis LLP represented Madison Dearborn.
Boise was advised by Goldman, Sachs & Co.
