Staples to Acquire Office Depot

Facing pressure from online competitors in the office supply industry, Staples and Office Depot have agreed to merge pending SEC approval, according to a Feb. 4 public conference call. The acquisition had been in the works since last September, and was unanimously approved by both companies’ boards after being encouraged to do so by numerous hedge fund managers.

According to Staples, the new merger, which comes after the successful consolidation of Office Depot and OfficeMax, will re-enforce the Framingham, Massachusetts company’s scale and credibility in new categories of office supply, such as delivery and online purchases, as well as a new multi-channel copy and print business. By diversifying, Staples hopes to be able to compete more effectively versus “large, diverse sets of competitors” naming a growing online retail market for Staples’ services and products, especially with the newly launched Staples Exchange e-commerce platform.

According to company financials, Staples will offer Office Depot  shareholders $7.25 per share in cash plus 0.2188 Staples’ shares per every Office Depot share, as well as re-committing to the 0.12/share dividend for Staples shares, though the share repurchasing program has been temporarily suspended pending the merger. This deal puts Office Depot’s value at $6.3 billion,with an EV/EBITDA of 8.5x. Taken together, Office Depot shareholders will account for 16 percent of the combined company’s ownership, while two selected board members will be added to the restructured 13-member board of directors. The merger will make Staples a $39 billion distributor in products and services, while expanding its store operations to include Office Depot space.

The loan is being financed by Bank of America and Merill Lynch for $3 billion in ABL credit, as well a six-year, $2.75 billion loan. After three fiscal years from the merger’s completion, it is expected that there will be $1 billion in synergies. There are not expected to be any store closures at this moment.