Boise Cascade gets out of the woods

BOISE – Ending years of speculation that it would get out of the timber industry, timber giant Boise Cascade Corp. announced Monday that it plans to split the company, spinning off its paper and forest products arm into a separate, privately held company.

The publicly traded firm, which last year bought office-products retailer OfficeMax, will take the OfficeMax name and move its headquarters to Itasca, Ill., probably by mid-November.

But things might not change all that much in Idaho, where the new private firm will keep the Boise Cascade name, the landmark Boise headquarters building, and “virtually all” of the firm’s timber-related employees. OfficeMax will retain an ownership stake in the new Boise Cascade LLC, but the timber company’s new owner will be Madison Dearborn Partners LLC, a private equity investment firm from Chicago.

“Sure, I have mixed emotions about this,” said CEO George Harad, who will become executive chairman of OfficeMax under the plan. “This is a company that had its heritage in its manufacturing operations.”

But since longtime employee Harad became CEO in 1994, the company, known in recent years by its brand-name “Boise,” has evolved from a manufacturing-based firm to a new focus on distribution. Manufacturing was two-thirds of the company’s business when Harad took the helm; a year ago it was just one-third, and after the OfficeMax acquisition, it dropped to roughly 20 percent.

Jim Riley, president of the Intermountain Forest Association in Coeur d’Alene, said he sees the deal as a “win-win for both.”

“What this does is allow Boise to get out of timber altogether, and become OfficeMax,” Riley said. “And it allows the part of the company that used to be Boise to become what it was before, which is Boise Cascade again.”

Boise Cascade LLC will have a new CEO, W. Thomas Stephens, a former president and CEO of Canadian timber giant MacMillan Bloedel Ltd.

Said Stephens, “In many respects, this transaction represents a return to Boise Cascade’s traditional roots as a leader in the paper and forest products industry.”

Riley noted, “It’s no accident, I think, that they picked that name. I think that shows a dedication to the principles and the people that have built the wood products and forestry side of that business to be what it is.”

One big advantage of the deal: By selling the paper, forest products and timberland assets to Madison Dearborn for $3.7 billion, the new OfficeMax will come out with substantially reduced debt.

“The company going forward will have a very strong balance sheet, and the forest products company will continue on in its legacy business, but under private ownership,” Harad said.

People who now own Boise stock will become owners of OfficeMax stock. As part of the deal, Harad said the company plans to return between $800 million and $1 billion to shareholders, either through dividends or stock repurchases, after the sale is complete.

The announcement prompted record trading of Boise’s stock on Monday, with more than 10 million shares changing hands. Initially, the stock price rose by as much as 9 percent, but then it dropped, and ended the day 6 cents down from the previous day’s closing price of $32.99 per share.

Harad noted that when the OfficeMax acquisition was announced a year ago, stock prices fell initially, but they later rose by 80 percent. They’re still up about 60 percent from the pre-acquisition level, he said.

Steve Shook, an associate professor of forest products marketing at the University of Idaho, said, “Timber is a great asset to have if you need to pay off debt.”

The timber industry is actually on an upswing, he said. “The forest products industry is one of the more profitable industries you can be in, at least this year,” Shook said.

Shook said only time will tell if the split is a success. “From my personal view, it’s probably a positive, because it’ll allow Madison Dearborn to focus closely on forest management and timber products, whereas Boise Cascade was very spread out into paper products, wood products, and this office supply business that they have. It’s a pretty diversified group of products to try to manage, from an upper-management point of view.”

Harad said the firm has been going through a major soul-searching since its OfficeMax acquisition. It had ended up with two different groups of shareholders, he said: Those who liked to play the ups and downs of the timber industry, and those who preferred the cash flow of the office products distribution business.

Shook said the firm was wise to recognize that. “You’ve got to keep your shareholders happy, there’s no doubt about it,” he said, “and if you have two distinct groups of shareholders that have different agendas, then you’re going to have to pick one or the other. You can’t please everybody.”

As part of the deal, Harad said the new Boise Cascade LLC has promised to pay substantially the same wages and benefits to employees for the first two years as they receive now under Boise. The firm also will follow environmental practices that Boise has committed to in recent years, including certified sustainable forest management practices, he said.

“All of those policies will apply, and by the way they’ll apply to the OfficeMax side,” he said.

In the coming months, the company will sort through which employees will go to OfficeMax and which will stay with Boise Cascade LLC. Some may opt for neither, Harad said.

OfficeMax will continue to operate its Boise distribution center, and Harad said though he’ll be heading up an Illinois-based company, he plans to keep both his residence and office in Boise.

The company owns about 2.3 million acres of timberland, including about 185,000 acres in southern Idaho and 475,000 acres in Washington, some of it in the northeastern part of the state. It operates a sawmill and plywood operation in Kettle Falls, a building materials distribution center in Spokane and various other operations in the Inland Northwest.