FRAMINGHAM, MASS. AND BOCA RATON, FLA. — Staples Inc. (Nasdaq: SPLS) will acquire Office Depot Inc. (Nasdaq: ODP) for $6.3 billion. The deal comes a little more than a year after Office Depot Inc. and OfficeMax Inc. merged in 2013.
Staples will acquire all of the outstanding shares of Office Depot. Under the terms of the agreement, Office Depot shareholders will receive, for each Office Depot share, $7.25 in cash and 0.2188 of a share in Staples stock at closing. Each company’s board of directors unanimously approved the agreement.
Based on Staples closing share price on Feb. 2, the transaction values Office Depot at $11.00 per share. This represents a premium of 44 percent over the closing price of Office Depot shares as of Feb. 2, and a premium of 65 percent over the 90-day average closing price of Office Depot shares as of Feb. 2.
“This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment,” says Ron Sargent, Staples’ chairman and CEO. “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.”
Staples began discussions to acquire Office Depot in September 2014. With the acquisition of Office Depot, Staples will have pro forma annual sales of approximately $39 billion.
“This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term,” says Roland Smith, chairman and CEO of Office Depot Inc. “It is also an endorsement of our many accomplishments and the tremendous success we’ve had integrating Office Depot and OfficeMax over the past year. We look forward to bringing our experience and knowledge to the new organization.”
Staples expects to generate at least $1 billion of annualized cost synergies by the third full fiscal year post-closing. The majority of these synergies would be realized through headcount and general and administrative expense reductions; efficiencies in purchasing, marketing, and supply chain; retail store network optimization, and sharing of best practices. Staples estimates one-time costs of approximately $1 billion to achieve its synergy target.
Following the closing of the transaction, Staples’ new board of directors will increase in size from 11 members to 13 members and include two Office Depot directors approved by Staples. Staples’ corporate headquarters will remain in Framingham, Mass., and Sargent will continue to serve as Staples’ chairman and CEO.
In connection with the acquisition, Staples has obtained financing commitments from Barclays and BofA Merrill Lynch for a $3 billion ABL credit facility, and a $2.75 billion six-year term loan. The closing of the transaction is not subject to financing conditions.
Staples is maintaining its current quarterly dividend of $0.12 per share and has temporarily suspended its share buyback program to focus on paying down transaction related debt.
The transaction is subject to customary closing conditions, including antitrust regulatory approval and Office Depot shareholder approval. The deal is expected to close by the end of the year. Office Depot will remain focused on its integration of OfficeMax during this period.
Barclays is acting as exclusive financial advisor to Staples. Wilmer Cutler Pickering Hale and Dorr LLP and Weil, Gotshal & Manges LLP are acting as legal advisors to Staples. Peter J. Solomon Co. is acting as exclusive financial advisor to Office Depot. Simpson Thacher & Bartlett LLP is acting as legal advisor to Office Depot.
Office Depot’s stock price closed at $9.28 per share on Tuesday, Feb. 3, up from $4.78 per share a year ago.
Staples’ stock price closed at $19.01 per share on Tuesday, Feb. 3, up from $12.90 per share a year ago.
— Danielle Everson