Commentary

Staples Hopes To Attach Office Depot In $6.3 Billion Deal

The retail climate has changed so drastically since Staples and Office Depot first tried to merge in the mid-’90s — including the Federal Trade Commission’s unanimous approval of the Office Depot acquisition of Office Max in 2013 — that it’s natural to assume that the FTC will look more favorably on the deal announced yesterday. If the deal is given the green light, Framingham, Mass.-based Staples will pay $6.3 billion to acquire its rival, whose headquarters are in Boca Raton, Fla.

“It’s happened to booksellers and retailers of consumer electronics,” writes Taryn Luna in the Boston Globe. “Now the country’s once-booming crowd of office-supply superstores may be reduced to a lone survivor with an uncertain future in the digital era.” 

Luna points to Barnes & Noble and Best Buy, both of them battling valiantly as the surviving national bricks-and-mortar chains in their categories against the onslaught of online competition led by Amazon. But besides Amazon, the shadows of Walmart and warehouse chains such as Costco loom large, too.

But antitrust scrutiny is more likely to focus on the impact of the merger on corporate customers who are more prone to buy 12,000 Bics or Pilots, not a mere dozen, as Drew FitzGerald and Liz Hoffman indicate in the Wall Street Journal.

Sales to medium-sized and large businesses “account for about 37% of revenue at each company, bringing in $6.2 billion in sales for Staples in the nine months that ended Nov. 1 and $4.6 billion in sales over the nine months through Sept. 27 at Office Depot,” Fitzgerald and Hoffman report, while retail sales have been flat at both chains for years. 

But corporate customers that the WSJ reporters talked to — Dannon yoghurt and toy company Jakks Pacific — say they aren’t worried because there are competitors to choose from.

“We already have a lot of other options when we buy at this scale,” Dannon spokesman Michael Neuwirth said, adding that he likes the variety available at Staples.com. “Not that we have a big variety of Post-it Note colors here.” 

But you can bet that Amazon has its eyes on providing those neon pink Post-Its to anyone who desire them in bulk.

“I think Amazon just launched a business-to-business office products initiative, so I’m sure they’re in there, knocking on the door,” Ronald L. Sargent, Staples chairman and CEO, told analysts in a conference call on Wednesday, Michael J. de la Merced and David Gelles report in the New York Times

They also point out “despite public pressure from an activist investor, Starboard Value, beginning late last year, the two companies said that work on the merger had begun months ago, with the discussions beginning in September.”

“Sargent said he ‘couldn't possibly handicap’ what the FTC would say about the proposed merger, but that he agrees with the federal regulatory agency's decision in 2013 that cleared the way for Office Depot to merge with OfficeMax,” reports Marcia Heroux Pounds in the Sun Sentinel.

“In its letter in 2013, the FTC said office supply superstores ‘today face significant competition and ... the proposed merger is unlikely to substantially lessen competition in the retail sale of consumable office supplies.’”

Heroux Pounds also reports that Office Depot has about 1,700 employees in Boca Raton who are worried about their jobs. Sargent would only say during the analysts’ call that Staples “will evaluate maintaining a presence” in the south Florida city. 

“This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment,” Sargent said in the statement announcing the deal. “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.”

With investments in both Staples and Office Depot, Starboard Value is “on track for somewhere north of $450 million in profits” from the Office Depot investment alone, David Benoit calculates in the Wall Street Journal.

You might be thinking, as the hed reads in Forbes.com, that “Hedge Funds Are Bringing the 1990s Back.” But, writes Antoine Gara, “instead of reflecting the heady, ‘stock is toilet paper’ zeitgeist of that decade, the new crop of deals are being floated as a sober-minded way to wrench out cost savings in industries that have been upended by changing technology and consumer habits.”

Guess it’s time to toss the Rolodex.

1 comment about "Staples Hopes To Attach Office Depot In $6.3 Billion Deal".
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  1. Stuart Dornfield from Stuart Dornfield, LLC, February 5, 2015 at 10:23 a.m.

    As the creator of the "Taking Care of Business" campaign for Office Depot, and someone who started with the chain when they had just 3 stores, I am saddened that another big box category has succumbed to the new reality in retail. All is not lost, however, because the new name should be: STAPLES. The Office Depot!

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