Retail consolidation continues in 2015 as office supplier Office Depot announces a $6.5 billion deal offered by competitor Staples. The companies have been in consolidation talks since September.
Under the terms of the agreement, Office Depot shareholders will receive $7.25 in cash and 0.2188 of a share in Staples stock for each share they own of Office Depot. Based on Staples closing share price on Feb. 2, the last trading day prior to initial media speculation around a possible transaction, the transaction values Office Depot at $11.00 per share.
This represents a premium of 44% over the closing price of Office Depot shares as of Feb. 2, and a premium of 65% over the 90-day average closing price of Office Depot shares as of Feb. 2.
The agreement has been unanimously approved by each company’s Board of Directors. With the acquisition of Office Depot, Staples will have pro forma annual sales of approximately $39 billion.
“This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment,” said Ron Sargent, Staples’ chairman and CEO “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.”
The deal synergies will consist primarily from headcount reductions and lower general and adminstrative costs as well as gained efficiencies in purchasing, marketing, supply chain and best shared practices.
Store closures are expected in Northwest Arkansas and Fort Smith. There are three Office Depot stores in Northwest Arkansas and one Staples location. In Rogers the two stores are across the street from one another, which is fairly common for these two fierce competitors. In Fort Smith both retailers have stores on Rogers Avenue in close proximity to one another.
“This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term,” said Roland Smith, chairman and chief executive officer for Office Depot, Inc. “We look forward to bringing our experience and knowledge to the new organization.”
Following the closing of the transaction, Staples’ newly constituted board of directors will increase in size from 11 members to 13 members and include two Office Depot directors approved by Staples. Staples’ corporate headquarters will remain in Framingham, Mass. and Sargent will continue to serve as Staples’ Chairman and CEO.
Staples said it will pay for the deal with financing provided by Barclays and Bank of America Merrill Lynch for $3 billion credit line and $2.75 billion in a 6-year term loan.
The transaction is subject to customary closing conditions, including antitrust regulatory approval and Office Depot shareholder approval, and is expected to close by the end of calendar year 2015.
Industry analysts don’t think this is a slam dunk given that Office Depot already acquired Office Max in 2013 and this deal further consolidates the third large competitor into one entity.
One ray of hope is that the FTC noted back in 2013 that Wal-Mart, Sam’s Club, Amazon and Target are all competitors in the office supply category.