--Companies release joint announcement after apparent premature
release
--Executive management to be determined by search committee
--Deal expected to close this year
(Updates with details from joint release in first four
paragraphs, OfficeMax earnings in 17th through 20th
paragraphs.)
By Joan E. Solsman
Office Depot Inc. (ODP) agreed to merge with OfficeMax Inc.
(OMX) in an all-stock deal that values the rival office-supplies
retailer at roughly $1.19 billion.
The companies called the transaction a "merger of equals" in a
joint press release that followed what appeared to be an accidental
release from Office Depot earlier Wednesday.
The deal will combine two companies that have a strong retail
presence but have been hammered in recent years by weak economic
conditions, falling sales and rising online competition. The merger
is expected to close by the end of the year, provided it receives
approval from stockholders and regulators.
The joint statement came less than three hours after Office
Depot unveiled the merger in a press release on its website. The
earlier release, which also included Office Depot's earnings about
a week before they were expected, was later removed from the
company's website, raising questions about whether the company
intended to make the announcement.
Office Depot later re-released its fourth-quarter earnings
report, in which the company swung to a loss on declining revenue.
Both results were below analysts' average estimates. Separately,
OfficeMax said it had swung to a fourth-quarter loss as revenue
fell and expenses jumped.
Under the companies' definitive agreement, Office Depot will
issue 2.69 new shares--valuing OfficeMax at $13.50 a share based on
Tuesday's close--for each OfficeMax share outstanding. The
stock-swap value is a 3.8% premium to Tuesday's close of $13.
Shares of Office Depot recently slid 2.8% to $4.88, while
OfficeMax shares added 8% to $14.05. That follows 9.4% and 21%
jumps in their respective shares on Tuesday.
Executive management of the new company is still to be
determined. The combined company's board would form a selection
committee--both of which will have equal representation and
governance rights for Office Depot and OfficeMax--to search for a
chief executive. The panel will consider Office Depot Chairman and
Chief Executive Neil Austrian and OfficeMax CEO Ravi Saligram for
the top post, as well as outside candidates.
The Wall Street Journal reported earlier this week that
OfficeMax and Office Depot were in advanced talks to merge as the
retailers try to fight off tougher competition from rivals like
Staples Inc. (SPLS) and Amazon.com Inc. (AMZN).
OfficeMax and Office Depot were getting a good deal out of the
combination, Credit Suisse analyst Gary Balter said. "Both
companies were struggling on their own, they needed to do this," he
said.
The $400 million to $600 million in expected cost savings were
in line with Mr. Balter's expectation for about $450 million, but
he was surprised by the search program for a CEO. Mr. Saligram, he
said, brings a little more enthusiasm to the table, and his
turnaround efforts at OfficeMax are further along.
The merging office-supply retailers have a substantial retail
presence. Office Depot, based in Boca Raton, Fla., has about 1,675
stores world-wide, annual sales of some $11.5 billion and about
39,000 employees. OfficeMax, based in Naperville, Ill., has about
900 stores in the U.S. and Mexico, roughly $7 billion in annual
sales and about 29,000 employees.
Office Depot also has been under pressure from activist hedge
fund Starboard Value LP, which disclosed holding a sizable stake in
September and has pushed the company to accelerate cost-cutting and
take other steps to improve profitability. In October, Office Depot
adopted a shareholder-rights plan, or "poison pill," that is
designed to deter hostile takeovers.
For the fourth quarter ended Dec. 29, Office Depot reported a
loss of $7.3 million, or 6 cents a share, compared with a
year-earlier profit of $20.4 million, or 4 cents a share. Stripping
out one-time items, the company reported break-even per-share
earnings for the quarter, versus 3 cents a year earlier.
Revenue fell 12%--or 11% in constant currency--to $2.62
billion.
Analysts polled by Thomson Reuters recently expected per-share
earnings of 4 cents on revenue of $2.76 billion.
Office Depot's plan to revive sales includes remodeling to
reduce average store size; eliminating lower-margin products, such
as entry-level laptop computers; and relying less on sales
promotions.
As for OfficeMax, the company reported a fourth-quarter loss of
$33.4 million, or 39 cents a share, down from a year-earlier profit
of $3.4 million, or 3 cents a share. The latest period included
asset impairment charges of $1.6 million, compared to $11.2 million
in such charges a year earlier. The latest period also included
$76.7 million in charges associated with the acceleration of
pension expense, among other items.
Stripping out the one-time items, adjusted per-share earnings
dipped to 16 cents from 17 cents a year earlier.
Revenue fell 7.4%--or 2.7% stripping out currency impacts--to
$1.7 billion.
Analysts polled by Thomson Reuters had expected per-share
earnings of 15 cents on revenue of $1.75 billion.
--Melodie Warner and Saabira Chaudhuri contributed to this
report.
Write to Joan E. Solsman at joan.solsman@dowjones.com
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