In the days after Boise Inc. was created in 2008, its new CEO said the outlook for the paper and packaging company was strong. A year later, the companys stock was trading at 24 cents a share, a 97 percent decline.
It was a terrifying experience at times, said CEO Alexander Toeldte.
To Toeldtes relief and that of Boise Inc.s shareholders and workers the worst is history. Boise Inc., which employs 535 people in the Treasure Valley at its corporate headquarters in Boise and its packaging plant in Nampa, has regrown its nationwide worker base, which had fallen by 500 people between 2008 and 2010.
It now employs about 5,000 people, up from 4,100 last year, thanks to the purchase this month of a California packaging company. Boise Inc. is making money, and its stock is above $8.
Between the optimism of Boise Inc.s opening days and the growing sense three years later that the company has righted itself lies a story of a struggle for survival that was finally broken by speed, a fluid called black liquor and a tax credit.
PART ONE: THE RISE AND BREAKUP OF A WOOD-PRODUCTS EMPIRE
Boise Cascades name is nearly as well-known and closely identified with Idaho as the potato.
The company began in 1957 when the Payette Lumber Co. merged with Cascade Lumber Co. and went into the paper and corrugated-container business, with Robert Hansberger at the helm.
Hansberger proceeded to turn the enterprise into one of the most glamorous conglomerates of the conglomerate-mad 1960s, wrote L.J. Davis in The New York Times in 1989.
In the late 1960s, the company added an office-supply unit. That business, Boise Office Solutions, eventually transformed the company. By the early 2000s, Boise Cascade was struggling. One analyst called it a weak player in a weak business with a weak outlook. In 2003, under Chairman George Harad, Boise Cascade sensed an opportunity in office-supply retailing. It borrowed money to buy OfficeMax, then the nations No. 3 office-supply retailer, for $1.3 billion in cash and stock.
That was the first in a series of debt-financed business deals that ended in three companies.
To help pay for the OfficeMax purchase, Boise Cascade sold off its paper, wood products, building-materials and timberland assets to a Chicago private-equity firm, Madison Dearborn Partners, in a leveraged buyout.
Boise Cascade changed its name to OfficeMax and moved its headquarters to Itasca, Ill., where Boise Office Solutions had been based.
But the Boise Cascade name was not destined to die. Madison Dearborn named its newly acquired company Boise Cascade LLC and kept its headquarters in Downtown Boise.
To help pay the new owners debt, Boise Cascade LLC in 2005 sold off 2.2 million acres of timber in Idaho and five other states.
In early 2008, Boise Cascade LLC sold its paper and packaging business to Aldabra 2 Acquisition Corp., a company begun by investors Nathan Leight and Jason Weiss of New York City-based Terrapin Partners. They wanted to take the paper and packaging division public. They, too, borrowed money to finance their $1.7 billion purchase. They secured a listing on the New York Stock Exchange.
Leight and Weiss named the new company Boise Inc. And they named Toeldte who had joined Boise Cascade LLC as executive vice president of its paper division in 2005 its CEO.
Boise Inc. began with five paper mills, five corrugated-products plants, a corrugated sheet plant and two distribution centers. In Idaho, it inherited corrugated-paper plants in Burley and Nampa that had a combined 270 employees, plus 500 corporate and transportation employees in Boise.
Boise Cascade LLC kept the wood-products manufacturing and building-materials distribution businesses. In Idaho, Boise Cascade retained distribution yards in Boise and Idaho Falls and a laminated-beam plant in Emmett.
The two companies operate side by side in the Boise Plaza building at 11th and Jefferson streets.
In the opening days of Boise Inc., executives spoke of its strong cash flow and world-class products.
As an independent company listed on the New York Stock Exchange, we believe we can sharpen our intense focus on customer satisfaction while offering our investors an opportunity to participate in the growth of our business, Toeldte said at the time.
But Boise Inc. was born with $1.1 billion in debt that had to be serviced.
Toeldte wasnt new to the paper business, nor was he new to companies that struggled. That experience turned out to be useful as prospects for Boise Inc. quickly deteriorated.
PART TWO: CRISIS AND CUTBACKS
Toeldte, 51, grew up in Cologne, Germany, and studied in German schools. He did post-graduate work in Montreal.
He spent 13 years at an international consulting firm in Europe and Canada, working with paper and pulp companies, often helping turn them around to avoid bankruptcy. And he ran both a paper and a building materials company in New Zealand under the Fletcher Challenge Limited Group before joining Boise Cascade LLC.
After Boise Inc. came into being in early 2008, prices for natural gas a key ingredient that fuels much of Boise Inc. energy needs shot up 83 percent in six months.
At almost the same time, the national housing market collapsed. Suddenly, wood chips, a byproduct of lumber manufacturing and an essential ingredient in making Boise Inc.s paper, became scarce.
Then the recession gained steam.
Boise Inc. was staring at that billion-dollar debt with only $250 million in earnings in 2008 before the deduction of interest, taxes and depreciation a 4-to-1 ratio. That is pretty heavy, Toeldte said.
When the stock price hit bottom in early 2009, It was as strenuous and stressful a time as any in the recession, he said.
Toeldte set up what became known as the speed plan, a companywide assessment of what was working and what wasnt; what was profitable and what was costing the company money.
We had to look at every element, Toeldte said.
At the packaging plant in Nampa, where 135 employees turn out about 800 million square feet of boxes a year, workers found ways to trim production costs by $30,000 a month in 2008-2009, said Dave Kunz, Boise Inc.s corrugated and container board general manager.
Recovery also forced painful decisions. In January 2009, Boise Inc. shut down its pulp production at St. Helens, Ore., and cut its paper production by 200,000 tons, costing 360 jobs.
You cant make product and just store it in inventory, Toeldte said. If you dont have customers ... then youve just got to stop making product until demand matches your product.
Declining demand for newsprint which has fallen from 12 percent of Boise Inc.s business in 2008 to 6 percent in 2010 forced the closure of a part of Boise Inc.s newsprint production at a plant in DeRidder, La., in spring 2009, costing another 120 jobs.
The Nampa plant, which mostly makes boxes for agricultural products such as processed potatoes and cheese, avoided layoffs. For that, eight-year employee Thomas Lumbreras, 31, is grateful.
To be steady was nice, said Lumbreras, assistant operator on a box-making machine.
As Boise Inc. began checking off items from the speed list, the company also became more quickly confident we could fight our way through it, Toeldte said. But it was a tough fight.
By early 2009, results from the speed plan began to show signs of success.
And the company caught a break, thanks to Congress, on a pulp-making byproduct that Boise Inc. used to fire much of its machinery.
Converting wood to paper pulp leaves a liquid called black liquor. In 2009, Boise Inc. found that the product qualified for a 50-cent-a-gallon alternative-fuel tax credit. The credit which ended in December 2009 contributed $207 million to the companys bottom line, swelling net income for several quarters.
The companys net earnings in 2009 totaled $20.4 million without special items such as the tax credit. With those items added in, net earnings shot up to $153.8 million.
Graham Mattison, an analyst who follows Boise Inc. for Lazard Capital Markets, said the credit saved their bacon.
Boise Inc. officials see it differently.
I think even without that, we had taken steps and business was improving, said Jason Bowman, Boise Inc.s investor-relations director. This was on top of that.
The additional revenue contributed to Boise Inc. paying down its debt, which is now at $604 million, a 44 percent drop from 2008.
PART THREE: RECOVERY AND GROWTH
The Great Recession had another casualty besides jobs and corporate bottom lines: paper.
Fewer white-collar jobs meant fewer people in offices turning out duplicates on copy machines. Combined with the growth in electronic storage of information that once was on paper, the paper business has dropped by about 2 percent, Toeldte said.
While paper remains the majority of Boise Inc.s business at 52 percent of sales, the company is working to grow its packaging business. Earlier this month, Boise Inc. spent $200 million to buy Tharco Packaging Inc., a California company that produces packaging for sophisticated equipment such as dialysis machines.
It expanded their footprint, said Mattison, the analyst who gives Boise Inc. a buy recommendation.
Moreover, Tharco becomes one more company-owned outlet that will buy liner board produced by Boise Inc. Before the Tharco purchase, Boise Inc. used about 70 percent of its liner board at its own plants, a strategy that enhances margins and keeps the company from selling its product in export markets where margins are thinner, Toeldte said. With the purchase of Tharco, 85 percent of the liner board will now go to company-owned production plants.
The purchase is also a sign that Boise Inc. is more robust than it was in the bleak days of 2008. Had the Tharco opportunity come along in 2008, Boise Inc. might have let it pass. We didnt have the financial capacity, Toeldte said.
Some stock analysts think the companys stock could hit $12 a share this year, nearly a 50-fold increase from its low point.
Phil Gresh, senior analyst in paper and packaging for J.P. Morgan, names Boise Inc. as his top pick in the sector. Its a company flying under the radar of many investors, he said.
Boise Inc. is looking for new opportunities.
The intensity of capturing the opportunities is in many ways the same as fighting for survival, Toeldte said. The difference is you can do it with a smile and a sense of fun.
Bill Roberts: 377-6408