NEW YORK —
Office Depot and OfficeMax are being collated.
The retailers said Wednesday they have agreed to combine in an all-stock deal worth about $1.2 billion that would transform the office-supply retail sector by helping the No. 2 and No. 3 chains compete against industry behemoth Staples.
The merger marks the first move toward consolidation in an industry that is bloated with stores. It reflects the changing retail landscape as “big box” stores have become outmoded and more people shop online.
“This combination will create a stronger, more global, efficient competitor able to meet the growing challenges of our rapidly changing industry,” said OfficeMax CEO Ravi Saligram in a call with analysts.
Still, doubts remain whether the combination, which has been mulled over in the industry for years, is enough to offset growing competition and a changing retail landscape.
Liang Feng, a Morningstar analyst, said the companies will have a lot of obstacles to overcome to succeed.
“The industry will face longer term structural headwinds with competitors like Amazon, Costco gaining ground and the decline in demand for secular office products like paper, pens and ink,” he said.
Office Depot Inc. and OfficeMax, along with bigger rival Staples Inc., were all founded in the 1980s and helped pioneer the big-box boom in the 1990s. They expanded rapidly in the U.S. throughout the decade.
But the rise in competition from web retailers like Amazon.com and discounters like Costco and Wal-Mart has been tough on the sector, leading to decreased sales. In addition, office suppliers were slow to bounce back from the recession, as consumers and small businesses alike cut back on ordering office products.
Over the years, the companies have closed stores, slashed costs and streamlined operations to offset stagnant sales. But the industry was still seen as too bulky.
For years, rumors about possible consolidation have swirled around the sector, which is worth about $21.2 billion, according to research firm IBISWorld Inc. Of that, Staples holds a 35 percent market share, Office Depot has 26.1 and OfficeMax has 15.6.
The Wall Street Journal first reported the possibility of a deal between Office Depot and OfficeMax on President’s Day on Monday, when markets were closed. That sent stock across the sector soaring on Tuesday when markets reopened.
Office Depot reported the terms of the deal in a release on its website early Wednesday morning. But then the company removed it, which caused some confusion.
In a call with investors, Office Depot CEO Neil Austrian said the error was due to the company’s webcast provider inadvertently releasing the company’s earnings release “well in advance of schedule,” which included information about the deal. Thomson Reuters Corporate Services, which provides investor relations website services to Office Depot, took the blame for the slip and said it is taking steps to ensure it will not happen again.
Morningstar’s Feng said he doesn’t expect the premature release to damage the companies.
“I don’t think it will cause that much of headache for the companies unless the deal doesn’t go through,” he said.
In the deal, Office Depot, based in Boca Raton, Fla., and Naperville, Ill.-based OfficeMax said holders of OfficeMax shares will receive 2.69 shares of Office Depot for every OfficeMax share they own.
That’s equal to about $13.50 per share, based on Office Depot’s $5.02 per share closing price Tuesday, giving the deal a total value of about $1.2 billion. OfficeMax had about 86.7 million shares outstanding as of Oct. 26, according to SEC filings. It is a 3.8 percent premium to OfficeMax’s closing price of $13 on Tuesday and a 26 percent premium to OfficeMax’s closing price on Friday, before word of negotiations leaked out.
Even though Office Depot could hold 54 percent of shares while OfficeMax holds 46 in a preliminary tally, the companies said characterizing the deal as Office Depot buying OfficeMax was wrong. Office Depot’s Austrian said the deal is a “merger of equals.”
The combined company’s name, CEO and corporate headquarters are yet to be determined; both companies’ CEOs are being considered for the top role. Both companies would have equal representation on the combined entity’s board.
OfficeMax said the move is expected to result in $400 million to $600 million annually in cost savings by the third year of the deal. The combined company expects $350 million to $450 million in one-time costs related to the integration.
The deal, which is expected to be complete by the end of the calendar year, still has to go through shareholder and regulatory approvals, and office supply mergers have been questioned by regulators in the past.
In 1997, Staples attempted to buy Office Depot. But the deal was nixed by the Federal Trade Commission due to concerns that the combined company would have too much of a competitive advantage in the marketplace.
But OfficeMax CEO Ravi Saligram said the industry has changed so much since 1997 that the companies have a strong case for approval. Amazon was “embryonic” in 1997 and stores like Wal-Mart, Costco and Best Buy were not as big competitors as they are now, he said.
“It’s a totally different landscape,” he said.
Consolidation will likely be good for both companies. Office Depot and OfficeMax have been hurt by restructuring costs and continued weak sales.
Office Depot, which has 1,675 stores worldwide, reported a loss of $17.5 million, or 6 cents per share for the three months ended Dec. 29. Excluding one-time items, the company broke even per share. Revenue continued to be weak, falling nearly 12 percent to $2.62 billion.
OfficeMax, which has 900 stores in the U.S., reported a loss of $33.9 million, or 39 cents per share, as it spent money on a restructuring. Adjusted for one-time costs, however, net income was 16 cents per share. Revenue fell 7 percent to $1.7 billion from $1.84 billion.
Office Depot shares fell 60 cents, or 12 percent, to $4.42 in trading, while OfficeMax shares fell 24 cents to $12.76. Staples shares fell 58 cents, or 4 percent, to $14.07.
NEW YORK —
Office Depot and OfficeMax are being collated.
- Top News
Rare Superman comic found in house insulation
It’s considered the Holy Grail of comic books: Action Comics No. 1 from 1938, featuring the debut of Superman. David Gonzales found one mixed in with old newspapers insulating the ceiling of a house he was renovating in a small town in Minnesota.
Toronto mayor denies he smokes crack cocaine
Toronto Mayor Rob Ford denied Friday that he smokes crack cocaine and said he is not an addict after a video purported to show him using the drug. The mayor of Canada’s largest city did not say whether he has ever used crack.
16 hurt in shuttle bus crash near Atlanta airport
Sixteen people were taken to the hospital Friday, at least two in serious condition, after they were hurt in a crash between a hotel shuttle bus and a tractor-trailer near Atlanta’s airport, officials said.
Trucker bumps I-5 bridge, sees horror behind him
The trucker was hauling a load of drilling equipment when his load bumped against the steel framework over an Interstate 5 bridge. He looked in his rearview mirror and watched in horror as the span collapsed into the water behind him. Two vehicles fell into the icy Skagit River.
Judge: Ariz. sheriff’s office profiles Latinos
A federal judge ruled Friday that the office of America’s self-proclaimed toughest sheriff systematically singled out Latinos in its trademark immigration patrols, marking the first finding by a court that the agency racially profiles people.
Today in History for Saturday, May 25, 2013
Today is Saturday, May 25, the 145th day of 2013. There are 220 days left in the year.
VHS graduation to be broadcast online
Valdosta City Schools along with Valdosta High School will celebrate the academic careers of our students on Friday, May 24, at its annual Commencement Ceremony beginning at 7:00 pm at Valdosta State University's Physical Education Complex.
VDT Weekend Update
News Reporter Caitlin Barker speaks to Bernard Bulemu and Eric Mathis, representatives from the South Georgia Regional Library about their summer programs for kids, teens and adults during the month of June, as well as lists fun summer camps taking place in the Valdosta area.
Man shot by FBI had ties to Boston bombing suspect
A Chechen immigrant shot to death in Florida after an altercation with an FBI agent implicated himself in a triple slaying that officials believe may have been connected to Boston Marathon bombing suspect Tamerlan Tsarnaev, authorities said.
WHO: Scientific red tape mars efforts vs. virus
International efforts to combat a new pneumonia-like virus that has now killed 22 people are being slowed by unclear rules and competition for the potentially profitable rights to disease samples, the head of the World Health Organization warned Thursday.
- More Top News Headlines
- Rare Superman comic found in house insulation