Boise Cascade Maxes Out

Boise Cascade (NYSE: BCC  ) continued its trek up the commerce chain from basic materials to retail, announcing the purchase of No. 3 big-box office supply chain OfficeMax (NYSE: OMX  ) in a deal worth $1.15 billion, or $9 per share of OfficeMax stock.

This represents a 25% premium over Friday's close, and will be paid to OfficeMax shareholders 70% in Boise Cascade stock, 30% cash. The transaction is collared, so should shares of Boise Cascade fall beneath a threshold, the cash component will increase. Both boards have approved the deal.

Boise Cascade once upon a time competed exclusively in the paper-products business with the likes of International Paper (NYSE: IP  ) , Bowater (NYSE: BOW  ) , Georgia Pacific (NYSE: GP  ) and Weyerhaeuser (NYSE: WY  ) . Like each of these companies, Boise has taken measures to mitigate a near-total dependence on commodity prices. The company has quietly, yet aggressively, pushed into the commercial market for office products: Its 40-plus distribution sites offer more than 15,000 products, from furniture to paper clips. With OfficeMax, Boise Cascade enters the retail market as well.

This is a smart move for Boise Cascade, though it does offer some risks. One raison d'être for big-box office supply stores like OfficeMax is aggregation of choice. If it's not careful, Boise Cascade could undermine this advantage. Should it decide to pressure OfficeMax to push Boise Cascade products to the detriment of the overall customer experience, OfficeMax will suffer at the hands of rivals offering products from a wider range of suppliers.

Or suffer more, I should say. Our Warren Gump discussed OfficeMax in a column in May 1999 describing the company's losses to competitors Office Depot (NYSE: ODP  ) and especially Staples (Nasdaq: SPLS  ) . OfficeMax seems to have been unable to solve any of the real issues that Warren described: Its stock recently traded some 50% lower than it had in 1997, reflecting further erosion of its competitive position relative to its larger rivals.

Remember, the big-box retailers' stock in trade is the ability to offer competing products, cheaply. There will be plenty of synergies between the paper products provided by Boise Cascade (which have decreased as a revenue component by more than 80% in a decade), its office products, and its distribution network with OfficeMax's retail presence.

It's a delicate balance, to be sure, but at this point, it's Boise Cascade's game to lose. Let's hope they don't press the synergies too hard and undermine OfficeMax's ability to compete with its rivals even further.