By Chelsey Dulaney
Staples Inc. agreed to buy Office Depot Inc. for $6.3 billion,
taking a major step toward consolidating the retail market for
pens, paper and other office supplies.
Under the deal, Office Depot shareholders will swap each share
for $7.25 in cash and 0.2188 Staples shares. The deal values Office
Depot at $11 a share, a premium of 44% over the closing price of
Office Depot shares as of Feb. 2, when The Wall Street Journal
reported the talks.
Together, the two companies have roughly 4,000 stores and on
Wednesday projected annual sales of more than $39 billion. A
combination of the two likely would get a close look from antitrust
regulators, who in 1997 sued successfully to block the same
proposed merger, bankers and analysts have said.
But some analysts say the retail landscape has changed
sufficiently since then, citing the rise of online retailers like
Amazon.com Inc. and increased competition from big-box chains like
Wal-Mart Stores Inc. and Target Corp., which all sell office
supplies now, too.
Staples said Wednesday that it has been in talks to buy Office
Depot since September and expects the deal to close by year's end.
Staples sees the deal resulting in about $1 billion in synergies by
the third full year after closing from cuts in head count, general
and administrative expenses, and supply chain costs.
Staples has a market capitalization of about $12.2 billion,
while Office Depot has a market capitalization of about $5 billion.
The combined company will be led by Staples Chief Executive Ron
Sargent, while two Office Depot directors will be added to the
company's board, increasing its size to 13 members.
The deal would likely be cheered by activist investor Starboard
Value LP, which owns about 6% of Staples and 10% of Office Depot,
and in January urged the companies to consider a merger. In a
letter to Mr. Sargent, Starboard said the cost savings from such a
combination could more than double the combined company's operating
profit.
Merger talks between Staples and Office Depot highlight the
pressures facing brick-and-mortar retail stores as consumers shift
how and where they shop. Staples' North American same-store sales
haven't risen since 2007, and Office Depot's haven't risen since
2006.
Meanwhile, both companies have been closing U.S. stores and
shifting others to smaller formats, while pushing their online
offerings.
Shares of Staples fell 2.2% to $18.59 in premarket trading,
while Office Depot shares rose 7.5% to $9.98.
Staples has obtained financing commitments from Barclays and
Bank of America Merrill Lynch for a $3 billion credit facility and
a $2.75 billion loan. The retailer added that it is committed to
maintaining its current quarterly dividend of 12 cents but has
suspended its share-buyback program to focus on paying down
transaction-related debt.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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