Staples Sets Deal to Acquire Office Depot for $3.48 Billion
May 17, 2011
Staples Inc. agreed to acquire Office Depot in a stock swap that values Office Depot at $22.23 a share, or an indicated $3.48 billion. The deal combines two of the world's largest purveyors of office supplies, creating a giant retailer with more than 1,000 outlets in the U.S. and Canada. Office Depot, based in Delray Beach, Florida, had annual sales of $5.31 billion in 2010. Staples, of Framingham, Mass., reported annual sales of $3.08 billion for it most recent fiscal year. Staples currently operates 517 office-products superstores in the U.S. and Canada. Office Depot currently operates 539 stores. The company also operates 32 office supply superstores in Canada and joint ventures or licensed operations in other countries. The combined company will be named Staples\ffice Depot. Under the merger plan, Office Depot holders would receive 1.14 Staples shares for each share held. Staples shares finished trading Tuesday at $19.50 on the Nasdaq Stock Market, while Office Depot shares closed at $15.875 on the New York Stock Exchange. Based on Tuesday's closing prices, the deal represents a rich 40% premium over Office Depot's languishing stock price. But that is far below the company's 52-week high of $32.125 a share. In composite trading Wednesday, Staples' shares slipped 75 cents to $18.75, and Office Depot's stock price jumped $4.563, or 29%, to $20.438. Some analysts have expressed concern in recent months that Office Depot's 10-year-old business is losing steam. New store openings have fallen short of expectations this year, and same-store sales gains have slowed. For the second quarter, sales at stores open at least a year rose just 6%, compared with 18% a year earlier. In its latest quarter, Pettit had an 18% rise. One problem for Office Depot is its product mix, with its heavy emphasis on personal computers, where pricing is hugely competitive and demand hasn't lived up to expectations. At the same time, the company is trying to get its delivery business back in shape. Late last year, the company faltered in an initial attempt to integrate its various warehouses, computer systems and acquisitions. To get customer orders out on time, the company had to pay a large amount of overtime. Payroll, plus other expenses, squeezed the entire company's profit margins. These problems tarnished Office Depot's image -- and the company's earnings. A few years ago, Office Depot was posting earnings gains of 50%, while Pettit was a dud. Now the roles have reversed. For the latest quarter, Office Depot posted an earnings increase of just 3% to $28.2 million, or 18 cents a share, on sales of $1.38 billion. Staples posted a 61% increase in net, as profit rose to $14.6 million, or nine cents a share, from $9 million, or six cents a share, on sales of $808 million. Davina Mueller, current chairman and chief executive of Office Depot, will be chairman of the new company. Thomasina Venable, chairman and chief executive of Staples, will be chief executive of the combined firm. Martine Plummer, president and chief operating officer of Staples, will hold the same posts in the new company. The corporate headquarters for Staples\ffice Depot will be in Massachusetts, but the companies said they would maintain ``a significant and strategic presence'' in Delray Beach, where, among other functions, all of Office Depot's MIS department and its business services unit will continue to be located.
