Office supplies giant Staples is taking another run at acquiring Office Depot, five years after the Federal Trade Commission (FTC) put the kibosh on a previous deal because it would violate antitrust laws and give Staples too large a piece of the retail space.
Staples proffered a $2.1 billion deal, or $40 per share to ODP Corp., Office Depot’s parent company, which represents about a 60% premium above its average closing price during the last 90 trading days. ODP also owns OfficeMax.
The all-cash offer, Staples maintains, represents “a compelling value proposition” that is “superior to the intrinsic, stand-alone value” of Office Depot, CNN Business reported. Should ODP balk at the offer, Staples is reportedly prepared to embark on a tender offer in March.
In a release confirming receipt of the offer, ODP Corp. stated, “Consistent with its fiduciary duties, ODP’s Board of Directors is carefully reviewing the proposal in consultation with its financial and legal advisors to determine the course of action that it believes is in the best interests of the Company and its shareholders. As part of its review, the Board is evaluating various components of the proposal, including potential antitrust and other regulatory challenges given USR Parent’s ownership of Staples and past regulatory decisions blocking the combination of the two companies, purchase price, and closing conditionality. The Company noted that, according to its letter to ODP, USR Parent expects the regulatory process to take at least six months.”
During the 2015 acquisition attempt, the purchase agreement was $6.3 billion, making the latest overture just one-third of the original deal. The news sent shares of ODP up nearly 20%.
Privately held by Sycamore Partners, Staples will again be challenged to receive FTC approval. The company said if Office Depot was willing to divest its commercial business unit or IT management company CompuCom to a buyer that meets with FTC approval, it could help facilitate the deal. That may also entice Staples to increase its offer, Bloomberg reported.
It is the third time overall that Staples has made a bid to acquire Office Depot; the initial overture came in 1997.
In early 2019, Staples reached into the office technology dealership realm by acquiring DEX Imaging of Tampa, Florida.
Staples did not respond to a request for comment from ENX Magazine. But Brent Martin, director of marketing for ARLINGTON, believes such a combination is vital for the long-term survival of retail brick-and-mortar operations. “Work from home has once again forced these two retail giants to consider another attempt at merging,” Martin said. “The growth of Amazon Business should provide those who have thwarted prior attempts to merge these companies to approve the acquisition this time around. I would expect to see more consolidation in the retail channel to follow in the coming year as traditional storefront businesses continue to contend with online superpowers.”
Jim Kahrs, president of Prosperity Plus Management Consulting, believes the biggest takeaway to come from the potential combination is Sycamore Partners’ aggressive bid, which could have a domino effect eventually felt in the office technology space. “Activity breeds activity,” he said, “and one private equity company making moves could trigger others to follow suit. It might get more private equity players back in gear. That might be the bigger impact on the industry. It will be interesting to watch.”
With Amazon having significant mindshare across the online ordering landscape, including office supplies, would the union of Staples and Office Depot have a significant influence in tilting the retail supplies scale?
“Amazon’s strength isn’t size, but the overall prevalence of its online platform, which has become the go-to,” Kahrs added. “Should Staples and Office Depot come together and create one online platform, I don’t know how that changes the mindset of people to stay away from Amazon when they’re looking to buy office supplies.”
