By Drew FitzGerald And Chelsey Dulaney
Staples Inc. agreed to buy Office Depot Inc. in a $6.3 billion
deal that would leave the U.S. with a single office-supply
superstore to compete with the discounters and Web retailers that
have invaded its turf.
The acquisition, which comes a little over a year after Office
Depot merged with OfficeMax, will have to win approval from
regulators who shot down a merger of the same companies 18 years
ago.
In approving the deal between Office Depot and OfficeMax, the
Federal Trade Commission acknowledged that the market for pens,
Post-it Notes and file folders has changed significantly because of
competition from the Web. The announced merger Wednesday, however,
would bring the number of national office suppliers down to one
from two, a change that could garner more scrutiny from regulators
than before, experts said.
Many Staples and Office Depot stores sit within 5 miles of each
other, Staples Chief Executive Ron Sargent told analysts on a
conference call. The move to combine two of the largest corporate
supply distributors also could raise questions.
Staples executives Wednesday said they didn't know much about
the FTC's stance toward the deal, though they stressed the new
competition that didn't exist the first time around.
"Amazon just launched a business-to-business office products
initiative, " Mr. Sargent said. "They're knocking on the door."
Staples agreed to pay Office Depot $250 million if antitrust
concerns scuttle the deal. The company's shares fell 8.5% in early
trading to $17.40. Office Depot's shares rose 1.5% to $9.41, well
below the $11 a share value of the deal.
Executives from both companies said the proposed merger would
have no immediate effect on their fleet of more than 4,000 stores.
Office Depot is in the process of closing hundreds of stores as it
works through duplicative locations left over from its merger with
OfficeMax. Staples last year said it would close roughly 225 stores
in an effort to boost its profitability.
Staples said Wednesday that it has been in talks to buy Office
Depot since September and expects the deal to close by the end of
the year. It 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. The companies said they
would be able to save at least $1 billion a year within three years
by cutting staff, merging distribution chains and closing some
stores.
The combined company will be led by Mr. Sargent.
The deal between Staples and Office Depot highlights 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.
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.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and
Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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