Currents in the forest products industry
A reshuffling of assets and business plans in the wood, pulp and paper industry shows a number of companies trying to adjust the hands they've been dealt in order to find categories and lines of business they can excel in. The tide in this industry is from vertically integrated operations to layered horizontal organizations
The big announcement came from Boise Cascade. The forest products giant will sell all its land holdings (over 2 million acres) and papers assets to a private equity firm, Madison Dearborn, for about $3.2 billion in cash. Boise Cascade will take on the name OfficeMax, the office products superstore it took over last year. In this way, the company will transition from a manufacturing and resource-owning company to retailer and distribution company. .Most analysts are skeptical. OfficeMax trails office products superstores Staple's and Office Depot already, and those companies have been encroached on severely by Wal-Mart and other retailers.
In another story, International Paper Company recently sold its British Columbia (Canada) Weldwood operations to Canadian West Fraser Company for almost $1 billion. The move makes West Fraser the #3 producer of timber in North America, after US Weyerhauser and Canada's Canfor. Those two companies have also made recent acquisitions in British Columbia as well.
International Paper, long in the doldrums, will concentrate on other areas. Most important is its recent acquisition of Box One, a company that makes corrugated boxes. That's an area where International Paper is already the leader.
These moves are following the same course as one-time industry player Georgia-Pacific, which has sold off its land and mills to concentrate on selling paper products, including paper towels and toilet paper. Likewise, Louisiana-Pacific sold off its last land holdings to concentrate on making value-added wood-based construction materials.
The reason for the sales is the relatively low return on logging and milling operations compared to the retail industry.
These companies are finding that it is a better deal to become middlemen than to deal in the (underpriced) raw materials. That's a big change in a very tradition-bound, high-capital industry.
