Boise Cascade Corp., a major force in the U.S. forest products industry with deep roots in the development of the Pacific Northwest, announced yesterday it is getting out of the lumber and paper business and instead will focus on selling office supplies through its OfficeMax retail chain.
The company said it has agreed to sell most of its timberland, forest products, paper mills and other related assets for about $3.7 billion to a new, privately held company formed by Madison Dearborn Partners LLC, a private investment firm based in Chicago.
The company plans to change its name to OfficeMax Inc. and will move its headquarters to Itasca, Ill., home of its office products division. The company is headquartered in Boise, Idaho, where it has been a prominent corporate presence since its founders won the right to tens of thousands of acres of public land originally granted to the Northern Pacific Railroad.
The transformation from ailing manufacturer to retailer was envisioned by many paper industry analysts a year ago when Boise announced it was acquiring OfficeMax, the nation's third-largest office supplies retail chain, ranking behind Staples Inc. and Office Depot Inc.
It marks the second time in a week that one of corporate America's household names has shifted away from its core business as the economy's traditional industrial base recreates itself in a more competitive, global environment. Last Thursday, AT&T, beset by competitors in an industry it virtually created, announced it would no longer market long-distance service to households.
Boise's asset sale makes sense because it has been a "below-average player" in the tough, slow-growth timber and paper industry, which has undergone substantial consolidation in recent years, said Mark Wilde, who follows the company as a managing director of Deutsche Bank.
One-time industry giant Georgia-Pacific Corp. underwent a similar metamorphosis in recent years, spinning off its timberlands and focusing on consumer products such as paper towels, toilet paper and paper cups.
Madison Dearborn, by contrast, has made money by buying similar paper mills and timberland from other companies, liquidating some assets and managing the remainder better than their former owners, Wilde said.
As purely financial investors, he said, Madison Dearborn is willing to consider options that traditional paper companies -- many of them family-owned -- are unwilling to consider, such as selling valuable timberland.
Among the Boise Cascade assets being shed are its 22 wood products facilities in the United States, Canada and Brazil; 27 wholesale distribution centers; five pulp and paper mills, five corrugated container plants and ownership or control of more than 2.3 million acres of timber.
Madison Dearborn "will probably clean it up and sell the pieces," Wilde said.
To buy the assets, Madison Dearborn has formed a company called Boise Cascade LLC, which will be based in Boise. It will be run by W. Thomas Stephens, former president of MacMillan Bloedel Ltd., a Canadian forest products company.
That will leave the new OfficeMax to concentrate on selling office furniture, electronics, paper and other supplies to consumers through its nearly 1,000 retail stores and to businesses through its catalog and Internet operations.
Boise Cascade ranked 248th on Fortune Magazine's list of the 500 biggest publicly owned companies last year, with profit of $8.3 million on revenue of $8.2 billion.
The company entered the retail market by buying OfficeMax in December for nearly $1.2 billion in cash and stock, doubling the sales of its office products division. Many analysts praised the merger when it was announced for giving OfficeMax, of Shaker Heights, Ohio, the greater size and financial support it needed to compete in a crowded field.
But some questioned whether more than two national chains can survive. "Many retailing growth investors scoff that BCC never will achieve Staples' level of excellence," industry analysts for Prudential Equity Group LLC wrote in an analysis for clients yesterday.
Boise Cascade reported a profit of $50.4 million in the quarter ended June 30, compared with a loss of $3.9 million in the same quarter of last year. Sales in the three-month period rose 76 percent to $3.4 billion.
The company said it expects to use about $175 million of the sale proceeds to invest in the new Boise Cascade LLC, and to use about two-thirds of the rest to pay down outstanding debt.
That will leave between $800 million and $1 billion to return to shareholders through stock buybacks, cash dividends or a combination of the two, said Boise Cascade Corp. Chairman George J. Harad, in a statement released yesterday.
"On balance we think this is the best transaction for shareholders," said Harad, who will become executive chairman of the board of OfficeMax Inc.
Boise Cascade shares initially rose on news of the breakup but receded to close down 6 cents, at $32.99.
Many investors were cashing in the profits they've made since the stock was trading at around $24 a year ago, uncertain of where the price is headed now, analysts said.