Office Depot agrees to buy OfficeMax in stock deal

Published on NewsOK Modified: February 20, 2013 at 2:03 pm •  Published: February 20, 2013

In the deal, Office Depot, based in Boca Raton, Fla., and Naperville, Ill.-based OfficeMax said holders of OfficeMax shares will receive 2.69 shares of Office Depot for every OfficeMax share they own.

That's equal to about $13.50 per share, based on Office Depot's $5.02 per share closing price Tuesday, giving the deal a total value of about $1.2 billion. OfficeMax had about 86.7 million shares outstanding as of Oct. 26, according to SEC filings. It is a 3.8 percent premium to OfficeMax's closing price of $13 on Tuesday and a 26 percent premium to OfficeMax's closing price on Friday, before word of negotiations leaked out.

Even though Office Depot could hold 54 percent of shares while OfficeMax holds 46 in a preliminary tally, the companies said characterizing the deal as Office Depot buying OfficeMax was wrong. Office Depot's Austrian said the deal is a "merger of equals."

The combined company's name, CEO and corporate headquarters are yet to be determined; both companies' CEOs are being considered for the top role. Both companies would have equal representation on the combined entity's board.

OfficeMax said the move is expected to result in $400 million to $600 million annually in cost savings by the third year of the deal. The combined company expects $350 million to $450 million in one-time costs related to the integration.

The deal, which is expected to be complete by the end of the calendar year, still has to go through shareholder and regulatory approvals, and office supply mergers have been questioned by regulators in the past.

In 1997, Staples attempted to buy Office Depot. But the deal was nixed by the Federal Trade Commission due to concerns that the combined company would have too much of a competitive advantage in the marketplace.

But OfficeMax CEO Ravi Saligram said the industry has changed so much since 1997 that the companies have a strong case for approval. Amazon was "embryonic" in 1997 and stores like Wal-Mart, Costco and Best Buy were not as big competitors as they are now, he said.

"It's a totally different landscape," he said.

Consolidation will likely be good for both companies. Office Depot and OfficeMax have been hurt by restructuring costs and continued weak sales.

Office Depot, which has 1,675 stores worldwide, reported a loss of $17.5 million, or 6 cents per share for the three months ended Dec. 29. Excluding one-time items, the company broke even per share. Revenue continued to be weak, falling nearly 12 percent to $2.62 billion.

OfficeMax, which has 900 stores in the U.S., reported a loss of $33.9 million, or 39 cents per share, as it spent money on a restructuring. Adjusted for one-time costs, however, net income was 16 cents per share. Revenue fell 7 percent to $1.7 billion from $1.84 billion.

Office Depot shares fell 60 cents, or 12 percent, to $4.42 in trading, while OfficeMax shares fell 24 cents to $12.76. Staples shares fell 58 cents, or 4 percent, to $14.07.