Something old, something new in lumber: Boise Cascade IPO soars

The stock market has been looking vulnerable and toppy all week. Are HFTs at least in part the ones to blame?


WASHINGTON, February 7, 2013 – The Maven went on hiatus yesterday, partly due to feeling under the weather, but partly due to irritation at missing out on the Boise Cascade (BCC) IPO.

That once and future lumber and pulp company went public (again) yesterday, priced up from its original estimated range, which is usually a good sign. But that also was a signal that the issue was getting a bit too hot to handle. The results were predictable to the Maven, an old veteran of the full-service brokerage retail heyday in the 1980s. Rich clients and institutions gobbled the whole issue up, while plebes like you and the Maven got precisely zilch.

Sour grapes? Sure, why not? This, BTW, is how the 1% manages to remain the 1% even in Great Depression II, but that’s for another column.

Suffice it to say that when an issue gets really hot, the bulk of it is allocated to each participating brokerage’s “best” clients. That is, those with multimillion dollar portfolios. When things get hot for an IPO, even the White House’s enemies in the $400,000 tax-the-rich club can and do get stiffed.

It tends to be a bit worse at the discount houses (where the Maven’s accounts reside), because they’re at the bottom of the barrel for getting shares from the big underwriters. And, of course, if the discount houses get any at all, THEY, in turn, allocate what’s left to THEIR big account holders.

It’s logical in a way, but also, well, irritating. Sure, you want to reward your best customers with the free gift of a big stock pop, which is sort of like flipping an investment house for a fat markup, but within less than 24 hours of owning it.

Yet in turn, this is just another way in which the haves put more distance between themselves and lesser beings, including the increasing numbers of have-nots. It’s all part of the steady drip, drip, drip that’s slowly and permanently destroying public confidence in all corporate and government entities. This will not end well, but the exciting conclusion is probably still a way’s off.

The Boise Cascade IPO was an unusual “new” stock offering because the company—once one of the nation’s largest paper, pulp, and lumber companies—has been around in one way, shape, or form seemingly forever. But a few years back, in late 2004, after having endured enough bad earning patches to overwhelm a lesser company, the original Boise Cascade sold its timber, building products, and paper products pieces to private equity firm Madison Dearborn.

But it gets more complicated. Just prior to this sale, Boise Cascade, for whatever reason, bought OfficeMax (OMX) in 2003, apparently figuring that the office products business was more promising than the one it was already in.

Whatever the case, after selling off its traditional lumber and paper assets to Madison Dearborn, the remaining shell of Boise Cascade, which still included some of its original paper and packaging business, renamed itself as the company it had just bought: OfficeMax. The old but new Office Max was undoubtedly happy to be vertically integrated with the remaining paper business which likely gave the retailer a pricing edge in this area.

Moving right along, in February of the soon-to-be-tempestuous 2008, OfficeMax decided to spin off the remaining paper and packaging business of the old Boise Cascade to the public, renaming this piece—surprise—Boise Inc. (BZ). That subset of the original company’s much larger operations continues to trade independently, and it’s occasionally done well, as the Maven can attest, having made money trading that stock at least twice over the last four years.

Meanwhile, Madison Dearborn had sold off its portion of the paper business to another investing partnership in 2007, retaining only the wood products and materials divisions of the original Boise Cascade. The Maven is not going to parse this further, given that every last detail of the ongoing transaction is not particularly relevant to the current story.

Eventually, like all investment firms, Madison Dearborn took its pound of flesh from the Boise assets and then attempted to go public last year. But the offering never made it as housing was still in turmoil and the time wasn’t right.

But at the beginning of 2013, housing is beginning to recover again (or so we are told), so Madison Dearborn decided to give the building materials/forest products IPO another go. Naming the remaining businesses—another surprise—Boise Cascade LLC, Madison Dearborn and its underwriters priced the IPO Tuesday night at $21 per share, a nice premium from the original range. Such pricing is usually (not always, as Facebook IPO buyers are well aware) bullish for trading. And sure enough, the Boise Cascade IPO (new symbol: BCC) popped a good 25% when trading opened, and remains buoyant even today when the rest of the market is tanking (of which more anon).

Boise Plaza building in downtown Boise, ID. Both Boise (BZ) and Boise Cascade (BCC) are housed here now, right back where they started in the first place. Wonder if they’ll merge back together now?

Having made a nice chunk of coin since January 1 on select Master Limited Partnership IPOs and secondaries, the Maven looked forward to likely fun when he requested an allocation of BCC. But the Maven got precisely zero shares, and he’s not likely to chase the company now that it’s in the $26-27 range, particularly when the over-all market is looking vulnerable. Maybe later. But this opportunity is likely gone for now.

Plus, it may not be an opportunity at all. This morning’s unemployment numbers were essentially stuck in neutral, and the big homebuilding “boom” that’s got investors all excited about companies like BCC may yet prove a disappointment if something isn’t done soon to rein in the Government’s propensity to suck in every last dollar it can, thus hindering recovery in small to medium sized businesses.

Meanwhile, there’s now a hint of currency wars on the horizon, with more countries and entities looking to devalue their own to regain competitiveness. Such a battle might, at last, ignite the thus-far nonexistent official inflation rate, which would change the game plan considerably.

As a result of this and other forces, the market has been looking vulnerable and toppy all week. It’s clear that the cognoscenti have been up to their usual tricks, saying bullish things on TV for the benefit of those little guys who are supposedly climbing back into stocks, even as they themselves dump their holdings wholesale.

We’ve noticed a very peculiar thing in this morning’s trading patterns that would seem to bear this out. Nearly every Southeast Asian-oriented ETF had an outsized spike down not long after trading opened this morning. Stocks and ETFs based in that region have had a pretty good run over the last 30-60 days. For this reason, investors, particularly this morning, seem to have been lightening their positions considerably and perhaps going short as well.

Some columnists say that this money is returning to U.S. stocks. That may be part of it. But we suspect that most professionals and are going to cash and heading for the sidelines for a while, at least in these Asian stocks and ETFs. And that’s because Fiscal Cliff II: The Sequester is almost upon us, something mightily feared by institutional investors, particularly if they have large holdings in the defense or industrial arenas which could be hard hit by any across-the-board cuts.

In point of fact, we think the paranoia is overdone on this. The government has grown so hugely under Barack Obama that even the minor trim that the dreaded sequester actually represents would be a good thing for the economy, potentially lowering borrowing costs further for small investors and businesses, plus, at long last, making actual loans available to this miserable and long-suffering sector of the economy.

That said, if people have decided to panic out of stocks, they’ll do it. And the machines will aid and abet that mass-migration. HFTs will swing into action and broom as many small investors as they can right out the door and into heavy losses. Any such down move should be brief but could be extraordinarily violent. Which is all we need in a market that’s been rigged to a point never seen by currently living generations.

We don’t look for this to be fixed anytime soon, as profits will continue to flow primarily to the fat cats who’ve rigged the system and who can afford to own the politicians who help them do this with various forms of corporate welfare—a game best played by Democrats, by the way, not hapless Republicans who always get blamed for what they mostly don’t or can’t do in this regard.

Ah, but as the sainted Jimmy Carter once said, life is unfair. It’s unfair when we don’t get our Boise Cascade shares, and it’s unfair when we see how bigwigs continue to rob us all with impunity. So our tactic will continue to emphasize investments that mostly dodge the evildoers and make us a little money in the process. That means a continued emphasis on REITs (which, however, many investors are currently exiting), MLPs (ditto in part), and utilities which are finally beginning to catch a bid this month.

We advise our readers to stay cautious while continuing to gradually sell profitable positions. Today as of about noon, this is turning out to be the second really nasty trading day this week, with clear evidence in some areas that the big boys are abandoning ship. Don’t let them leave you holding the back. Take your own profits before they have a chance to help themselves to your winnings.

Back tomorrow with more excitement.

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Follow Terry on Twitter @terryp17


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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17