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OfficeMax Deal May Be Good for Everyone

Boise Cascade's (BCC - Get Report) bid to take over OfficeMax (OMX) may actually benefit the competition as much as the struggling office products retailer.

That's the take of several Wall Street analysts, none of whom expects the deal to shake up the office products industry. But in the short term, Staples (SPLS - Get Report) and Office Depot (ODP - Get Report), the No. 1 and No. 2 players, respectively, could pick up a few OfficeMax and Boise business customers while the two are in limbo waiting to merge, analysts say. And in the longer term, the merger could provide a more solid third competitor, creating a more stable industry less prone to bottom line-busting promotions.

"There will likely be a more rational, but more equal, competitive environment," said Colin McGranahan, who covers Office Depot and Staples for Sanford Bernstein. "There will be a more benign, oligopolistic market."

Boise on Thursday agreed to buy OfficeMax for about $1.15 billion in a part cash, part stock deal. The agreement, which the companies expect to complete in the fourth quarter, values OfficeMax's stock at about $9 a share, a 25% premium over its Friday close of $7.18.

As part of the deal, Boise, an office products manufacturer, plans to merge OfficeMax with its direct sales business. The companies project the combined 2002 revenue of their retail and direct sales businesses would have been $8.3 billion.

That would put OfficeMax in closer contention to Staples and Office Depot, in relation to which it is currently a distant third. In their respective 2002 fiscal years, Staples, Office Depot and OfficeMax posted sales of $11.6 billion, $11.4 billion and $4.8 billion.

And it would add corporate sales to OfficeMax's business. Although corporate sales are seen by many as a key offering by office supply retailers, offering a fast-growing and profitable business segment, OfficeMax has only a small presence in the corporate business, focused on its CopyMax photocopying centers.

The deal could also help shore up OfficeMax's bottom line. Staples and Office Depot have both posted strong profits in each of the last three years. In contrast, OfficeMax posted big losses in its 2001 and 2000 fiscal years amid a restructuring and store closings.

Of course, the deal is not a guaranteed home run for Boise.
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