Staples Purchases Office Depot for $6.3 Billion
Staples, Framingham, Mass., bought its main competitor Wednesday, purchasing Office Depot, Boca Raton, Fla., for $6.3 billion. The deal awaits approval from federal regulators and Office Depot shareholders.
Both companies have struggled, with Staples planning to close 225 stores by mid-2015 and Office Depot, which bought OfficeMax in 2013, aiming to shutter 135 locations this year, according to The Washington Times. And more closures could occur after the merger as about half of Staples stores are within five miles of Office Depot sites.
In the deal that could make Staples the lone office-supply chain remaining, Staples announced it will acquire all of the outstanding shares of Office Depot, and Office Depot shareholders will receive $7.25 in cash and 0.2188 of a share in Staples stock for each Office Depot share at closing.
Both companies' board of directors have approved the sale, which has been in the works since September, and the company expects to close by the end of 2015. Staples expects annual sales to reach $39 billion when the merger is completed, and hopes to reduce costs by the third full fiscal year after closing through "headcount and general and administrative expense reductions, efficiencies in purchasing, marketing, and supply chain, retail store network optimization, as well as sharing of best practices," according to Staples.
“This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment,” Ron Sargent, Staples’ chairman and CEO said in a statement. “We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies.”
Sargent will remain chairman and CEO, but the company's board of directors will expand from 11 to 13 to include two Staples-appointed Office Depot directors.
“This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term,” Roland Smith, chairman and CEO for Office Depot Inc., said in a statement. “It is also an endorsement of our many accomplishments and the tremendous success we’ve had integrating Office Depot and OfficeMax over the past year. We look forward to bringing our experience and knowledge to the new organization.”
However, investors are concerned that the Federal Trade Commission (FTC) will not approve the deal, according to USA Today. That worry caused Staples shares to drop 12 percent the day the merger was announced.
"I think they have to fight it," Staples co-founder and former CEO Tim Stemberg said of the FTC's potential view of the merger. Staples faces "potentially a long and nasty legal skirmish" to get it done, he added.
Staples has given itself an out if the FTC approval process becomes too difficult, according to The New York Times. Staples has agreed to sell off up to $1.25 billion worth of Office Depot's sales, but if the government wants that number to be higher, Staples can walk away from the deal.
Staples also has agreed to a $250 million termination fee if the deal is denied based on antitrust grounds, according to The Washington Times.
In 1997, the pair attempted a merger, according to CNET. The FTC blocked it, but unanimously approved the Office Depot acquisition of OfficeMax 16 years later.
"Customers now look beyond office supply superstores when buying office supplies," the FTC said in 2013. "Non-office supply superstores, such as Wal-Mart and Target, along with club stores like Costco and Sam's Club, have expanded their office supply product offerings and now compete with office supply superstores. Additionally, Internet retailers of office supplies, most prominently Amazon, have grown quickly and significantly, and compete with office supply superstores."