Taking Care of Business: An Office Depot, OfficeMax Merger?

It’s likely the Office Depot-Office Max merger deal is the result of continuing fallout from Boise’s earlier re-IPO.


WASHINGTON, February 19, 2013 – Although Valentine’s Day 2013 is already in the past, Office Depot’s Cupids paid a weekend visit to OfficeMax HQ, and behold: representatives of both corporate entities have apparently declared their urge to merge. The Wall Street Journal reported over the weekend and again in this morning’s paper that both these companies were in advanced talks to finalize a stock-for-stock deal that would unite both office supply retailers under the Office Depot banner. That’s what we’d call Taking Care of Business for real.

As if to emphasize the point, shares of OfficeMax (OMX) closed on the NYSE Friday at $10.75 Friday, while Office Depot (ODP) shares closed at $4.59. (During this morning’s trading at around 10:30 EST, OMX was logging an astonishing $13.51 while ODP clocked in at $5.31, both at or near their 52 week highs.)

The ODP/OMX merger could still come unglued at this late stage. But judging from the news rollout, that negative outcome hardly seems likely, with a final announcement cautiously expected perhaps later this week.

What’s interesting to the Maven is this: having recently penned a column grousing about how he couldn’t get in on the hot Boise Cascade re-IPO deal, he’s also a little surprised at how quickly this new Office Depot-Office Max  deal popped up.

As readers of this column will recall, the company long known as Boise Cascade, shed much of its business, gobbled up Office Max and assumed that company’s name, and then eventually took its remaining forest products businesses that didn’t remain with “Office Max” private again.

Pushing away from the Office Max piece not quite two weeks ago, Boise Cascade (BCC) went public as itself once again, so we have to conclude it’s likely the Office Depot-Office Max merger deal is the result of continuing fallout from Boise’s earlier re-IPO..

Sometimes you can’t follow these things without a program, but it all makes sequentially logical sense, as all the businesses inside this deal or deals are rapidly morphing this way and that in unexpected ways.

The office products business was strong in the 1990s and early 2000s as the hot business market in general—minus the dot.bomb and 9/11, of course—catered to the then popular startup culture as new offices were opened across the country and as laser and ink-jet printers cranked out enough paper documentation to de-forest half of Idaho.

And speaking of paper, why not speak of forest products. As you may recall, during the same period, the housing boom to end all housing booms had taken hold. Since most housing in the U.S. is still “stick built,” forest products and lumber companies couldn’t keep up with the boom, running flat out in the process.

When everything imploded circa 2008, companies like Boise Cascade got hit with a double whammy. Lumber sales tanked, pressuring that side of the business. And at the same time, paper products began to peter out. Less moms and pops needed printed material as small offices were shuttered in droves. And another surprise hit the paper business, as the Internet’s rapidly increasing ubiquitousness began to make paper documentation, along with newsprint and glossy magazines, obsolete, lessening demand for products from that side of the forest products biz as well.

Hence, the various protean shapes assumed by Boise Cascade over the last decade or so before its recent re-emergence. But hence, too, this probable deal between ODP and OMX. With both paper and office products—not to mention office furniture—still in the consumer doldrums due to the continuing dreary economy, the office products business has become saturated with outlets that no longer generate impressive profits.

Additional pressure has also arisen via massive and unexpected competition from giant retail generalists like Amazon (AMZN), Costco (COST), and Wal-Mart (WMT). To defend both of their businesses and, no doubt, to gain back some pricing advantages, it makes sense for the Office twins to rationalize their businesses and eliminate duplicate, competing outlets, the better to battle the generalist giants.

Below: One Office Depot employee, at least, is flipping out over the proposed deal.

In any event, this merger of big box office supply stores will be interesting, assuming it goes forward. With Warren Buffett’s partial takeover of Heinz, announced last week, merger mania—and thus the stock market—could be heating up big time as speculation concerning additional deals is likely to bounce around the rumor mills, creating headlines that will drive HFTs into increasing frenzies of speculative trading.

This morning’s market barometer:

We continue to remain cautious traders, although the market is up sharply this morning. Last week’s trading was more than a trifle weird due not only to the typical idiocy surrounding options expiration week, but also to the vacuum in trading left by the Chinese New Year holiday. We’d virtually forgotten that both the Chinese and many other Southeast Asian traders and businesses completely close shop for this extended holiday, strongly influencing markets by their near-complete absence from trading activities. Previously active stocks and ETFs focused on that part of the world flat lined at best and tanked at worst last week as a result.

With relative normalcy returning this morning, with both East Asian and American traders back at their desks post-Chinese New Year and post-President’s Day, trading has picked up a bullish flavor once again, and many of last week’s dead East Asian stocks and ETFs are at least showing a pulse this morning.

We’ve taken an interest in the following: ETFs: EWJ (Japanese market index) plus EWJ March 10 calls for potential added juice, as Japan is vigorously trying to re-inflate its long-dead currency to make its products more competitive on world markets; AAXJ, which gives us a basket of East Asian stuff minus Japan; and Schwab’s SCHC, a basket of smaller cap East Asian stocks that’s been doing uncommonly well for us lately.

Stocks in general: Mostly utilities, REITs, and MLPs right now, as they’re providing at least a bit of capital appreciation while dishing out massive dividends which help counter the current low-interest rate environment that’s killing savers and investors in the U.S.

Utilities: Black Hills (BKH), UGI, First Energy (FE), and American Water Works (AWK). All pay good dividends, with FE particularly impressive. BKH, UGI (primarily a gas utility) and AWK have particularly good business stories, with AWK being a sleeper in the little noted but increasingly key water utility business. FE has had a little difficulty predicting forward business lately, which has hurt its stock price. But it seems to have bottomed out lately, giving it a chance for a leisurely—very leisurely—move back toward 50 while its unbelievable 5.42% dividend gives you an incentive to wait.

More on REITs and MLPs tomorrow. Happy trading. But beware The Sequester.

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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