Tuesday, July 15, 2003

Boise Casade buys OfficeMax Boise Cascade announced that it will acquire the OfficeMax office supplies superstore chain for $1.115 billion. While Boise Cascade is by origin a wood and paper company, in recent years, all of its profits and a substantial portion of its income have come from the sale of office products. In fact with $3.6 billion in office supply sales in 2002, Boise Cascade is almost as big in that area as OfficeMax ($4.8 billion). The difference is that OfficeMax serves individuals and small business with its (around 1,000) retail outlets, while Boise Cascade sells directly to large businesses nationwide and in Australia, Canada, and New Zealand (over 40 offices). In one sense, the merger is a horizontal one, as the two companies can share inventories and pool purchasing in slightly different niches. In another sense, it is a vertical merger, as Boise Cascade is one of the four major manufacturers of office paper. It would be a mistake, however, for the company to think that it can single-source its paper. It would be bad for any retailer to be seen as a company store, and choice, or the illusion of choice, is important in retailing. The synergy is pretty small. It's also unlikely that any competitor would want to stock Boise Cascade paper. In fact, every sign is that the company will try to get out of the paper and lumber industries, both of which have come on hard times. The company loses money from these operations, and they will make up only 20% of the new company. The problem is finding a buyer; the main competitors have their own problems. For OfficeMax, it is a survival move. The company is far smaller than its rivals, Staples and Office Depot. The combined company will be more in the same league. Of course, all there are looking over their shoulder at Wal-Mart, which is growing fast in the office supplies area. According to an article in the Houston Chronicle,  At least one analyst is skeptical that three office-supply megastores can survive. Alex Paris, president of Barrington Research, noted that most specialty retail markets have only been able to support two megastore chains. "Look at drugstores," he said. First, the industry lost independently owned ones. "Then they were bought up by three big chains -- Rite Aid, Walgreens, and CVS. Now only Walgreens and CVS are doing well. And among mass merchandisers, Kmart is struggling just to stay afloat, leaving only Wal-Mart and Target." The article points out that consolidation has been going on for a long time. Ten years, ago, there were some 14 retail office supply chains. Now there are three. Office Max and Boise Cascade are trying to make sure that they aren't the next to go. 6:58:44 PM

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