Staples acquiring Office Depot for $6.3 billion

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By Sam Bonacci

Framingham-based Staples Inc. is buying its chief rival, Office Depot, in a deal valued at about $6.3 billion, the companies announced Wednesday morning.

The deal, which comes after The Wall Street Journal and other media said the two rivals were in merger talks, will bring together two companies – three counting Office Max, which Office Depot bought in 2013 - with combined annual sales of approximately $39 billion, Staples said.

The companies said the merger is expected to be complete by the end of this year.

Staples expects to save at least $1 billion with the merger. Chairman and CEO Ron Sargent, who will remain CEO after the merger, said the savings “will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies.”

Over the past two years, Staples has been gradually reducing its retail store space and focusing more on online sales.

Staples had been under pressure from activist investor Starboard Value, which has a stake in both companies. Last month, Starboard Value wrote a letter to Sargent, demanding that he begin working a merger Office Depot.

"We believe that the best way to maximize value for Staples' shareholders is through exploring and completing a business combination with Office Depot. For a variety of reasons, we believe that now is the right time to pursue such a transaction," the letter read.

Staples officials responded to the letter with a statement that it welcomes "constructive" dialogue with shareholders.

Staples' stock fell more than 12 percent Wednesday, closing at $16.73 a share. Meanwhile, stock in Office Depot, based in Boca Raton, Fla., rose 2.2 percent to close at $9.48.

Talks began in September, according to Staples, and the agreement has been unanimously approved by each company’s board of directors. Staples estimates a one-time cost of $1 billion in merging the two companies.
The deal is subject to the approval of regulators and Office Depot shareholders.

Under the deal, Office Depot shareholders will receive $7.25 in cash and 0.2188 of a share in Staples once the deal is completed. Based on Staples’ closing stock price on Monday, the last trading day prior to initial media speculation around a possible transaction, the transaction values Office Depot at $11 per share, the companies said. That represents a 44-percent premium over the closing price of Office Depot shares as of Monday, and a premium of 65 percent over the 90-day average closing price of Office Depot shares, also as of Monday.