Madison Dearborn to purchase Boise forest products business for $1.65 billion

Aug 04, 2004. /Lesprom Network/. Boise Cascade Corp. last week unveiled an exit from forest products in a $3.725 billion sale of virtually all its manufacturing operations to form an $8.6 billion independent office products supply giant brand-named OfficeMax Inc. Boise's vast timberlands, five major pulp and paper mills, and building products business will be sold to Madison Dearborn Partners LLC, the private equity firm that has been substantially increasing its position in the industry. "At last!" commented one analyst, noting the sweeping announcement July 26 follows almost two years of speculation on the future of Boise, which is ranked about the fifth largest public U.S. forest products company based on sales. The deal includes an apparent partnering between MDP and a timberland investing and managing company that would facilitate the sale of Boise's 2.36 million acres of timberlands, according to industry sources. Boise's timberlands carry the largest weight in the transaction, valued at $1.65 billion, according to analyst estimates, compared with about $1.37 billion for the pulp and paper mills, and $700 million for the building products manufacturing and distribution business. Generally hailed by analysts and industry observers, Boise will combine its own office products distribution business with the super-store chain OfficeMax it acquired late last year for $1.2 billion. MDP will take on the remaining company through newly formed Boise Cascade LLC. Closing of the deal is expected in November. Highlights: OfficeMax will retain $175 million in common equity and special class stock or 20% of shares in the new Boise Cascade LLC. The deal includes a 700,000 tons/year copy paper supply agreement between Boise Cascade and OfficeMax. The transaction includes a break-up fee and remains open to competing offers. Boise Cascade LLC will be led by CEO W. Thomas Stephens, former CEO of MacMillan Bloedel Ltd. The deal includes Boise's headquarters building in Boise, Idaho. OfficeMax will be lead by current Boise Office Solutions CEO Christopher Milliken; Boise CEO George J. Harad will be executive chairman. Boise emphasized the value of the single sale to a financial buyer rather than separate assets sales to strategic buyers with potential synergies. A smooth transition to OfficeMax will also benefit customers of each company, Harad said. Formerly based in Shaker Heights, Ohio, OfficeMax will be based at Boise Office Solutions headquarters in Itasca, Ill. Executives indicated no immediate major impact on employment, which includes 42,000 workers at Boise Cascade and 13,000 at the new OfficeMax. Boise said it expects to receive $3.1 to $3.2 billion in proceeds on the sale, and will use $2.2 to $2.3 billion to pay down debt, and return $800 million to $1 billion to shareholders through common or preferred stock buybacks, cash dividends, or a combination. Boise's paper assets include annual capacity for 2.9 million tons of mostly white copy papers and containerboard at five U.S. pulp and paper mills as well as two paper converting plants, six distribution centers, and five corrugated box plants. Boise Paper Solutions reported sales through six months of 2004 of $969.7 million. The building products business includes seven sawmills, 12 plywood and veneer plants, and 27 building materials distribution centers in 21 states, according to recent company reports. Boise Building Solutions sales through six months were $1.906 billion. Boise Office Solutions includes 80 distribution centers in 31 states, Canada, Australia, and New Zealand, and 102 stores, mostly in Canada. OfficeMax operations include 931 superstores in 49 states, Puerto Rico, and Mexico, and three large distribution centers in Alabama, Nevada, and Pennsylvania. Boise Office Solutions reports total six-months sales of $4.34 billion. "The transaction we are announcing today will complete Boise's transformation, begun in the mid-1990s, from a predominantly manufacturing based company to a world-scale distribution company," Boise CEO George Harad commented. Boise Cascade was formed in 1957 through the merger of Boise Payette Lumber in Idaho and Cascade Lumber in Washington, and built its first paper mill in 1958 in Wallula, Wash. A new paper machine launched at International Falls, Minn., in 1989. It sold or shut five paper mills in 1994-1996, and launched a new paper machine at Jackson, Miss., in 1996. Boise established its office products business in 1964 and spun off the unit from 1995 to 2000. Boise acquired OfficeMax in a $1.2 billion deal announced in July and completed in December 2003. MDP did not issue specific details on its plans nor participate in media and analyst presentations last week. MDP co-president Samuel M. Mencoff said the company looked forward to working "with Tom Stevens and the Boise Cascade management team as they pursue their strategy as a privately held company focused solely on their traditional paper and forest products markets." MDP has been one of the most active global investors in the paper, packaging, and forest products sectors consummating $11.7 billion of management buyout transactions in the past decade including Jefferson Smurfit Group, Packaging Corp. of America, Graphic Packaging International Corp. (Riverwood International), and Buckeye Technologies Inc.