Why OfficeMax Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of office supply chain OfficeMax (NYSE: OMX  ) rallied as much as 13% today, following the finalization of the extinguishment of non-recourse debt tied to Lehman Brothers.

So what: It’s a little confusing, but in 2004, OfficeMax received an $871.5 million Lehman-backed note in connection with a timberlands sale. OfficeMax turned around and monetized the note by issuing securitization notes through a special purpose entity that was backed by Lehman Brothers. Lehman’s bankruptcy in 2008 constituted a default under the terms of the note, and a U.S. Bankruptcy Court order will finally allow the extinguishment of the debt from OfficeMax’s books. OfficeMax expects to report a one-time gain of $671.1 million in the third-quarter, and anticipates the increased balance sheet clarity will help investors better understand the company.

Now what: That’s definitely great news from a clarity perspective, but it does little to cure the fact that OfficeMax is potentially the worst of breed in the office supplies sector. The company has attempted to do what its larger rival Staples (Nasdaq: SPLS  ) has done, which is close underperforming stores , focus on mobile products, and build its online presence -- but even then it’s trailing its peers. Nothing has fundamentally changed with OfficeMax’s business, and I’d consider using today’s pop as a fantastic exit point.

Craving more input? Start by adding OfficeMax to your free and personalized Watchlist, so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On September 15, 2012, at 3:40 PM, DaveLV1 wrote:

    Sean, you reference your own article which stated your main concern was OMX's 1.24 billion debt. Of course, OMX does not have such a debt and the event of the day was OMX starting to clean up its books so even challenged analysts could understand their worth. Your premise was wrong in your old article and continues to be wrong with this one. OMX has earnings growth, PE of about 10 and pays a dividend. It was $18 per share just two years ago.

  • Report this Comment On September 16, 2012, at 12:55 AM, TrackUltraLong wrote:

    Even with the extinguishment of that $817.5 million, OfficeMax still boasts near $500 million in net debt and negative sales growth. Still not impressed with it.

    TMFUltraLong

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