Mindful of two past attempts in joining forces that eventually didn’t pass muster with the Federal Trade Commission, The ODP Corporation—parent company of Office Depot—formally rejected the $40 per share acquisition offer put forward by Staples last week. In the process, ODP held out hope for a possible combination of the companies’ consumer-focused retail operations as a more direct path to achieving shareholder synergies.
In a letter to Stefan Kaluzny, managing director of Sycamore Partners (Staples’ private equity owner) ODP Chairman Joseph Vassalluzzo rejected the $2 billion offer, stating, “ODP is pursuing a comprehensive strategy that we believe can deliver significant value to ODP shareholders without introducing material regulatory risk.” This includes Office Depot building on its B2B strategy and other growth initiatives. Vassalluzzo also pointed out ODP is in the process of selling its CompuCom division, based upon a strategic review the company conducted last November.
Mindful of the difficulties faced in pursuing a full combination, Vassalluzzo believes a more viable path forward would be to pursue a joint venture between the companies. He also suggested a possible Staples acquisition of ODP’s retail and consumer-facing e-commerce operations.
“Though both of these options require regulatory approval, we believe the regulatory risk of pursuing a retail-only transaction to be significantly lower than your proposed transaction,” Vassalluzzo wrote. “A transaction with you that is limited to our retail and consumer-facing and e-commerce business would eliminate the time, complexity and uncertainty created in your proposal by the need to identify a suitable third-party buyer willing to acquire the B2B business on terms that would be mutually acceptable to our respective companies. Our proposed alternatives would also create a competitor in a dynamic business environment that would greatly benefit consumers.”
Vassalluzzo added that Staples’ initial proposal would expose “ODP to material uncertainty, significant financial burden, and the risk of significant damage to ODP’s business in the event that regulatory approvals could not be obtained, as the experience of our prior failed transactions has shown.”
He added that if Staples persists in attempting a full acquisition of ODP, “we call on you to expressly address the regulatory uncertainty by committing to bear the risk of potential antitrust obstacles or required remedies through a customary ‘hell or high water’ provision.”
Staples’ previous attempt to acquire Office Depot for $6.2 billion in 2016 was nixed due to antitrust considerations.
