Updated! Framingham, Mass. — Staples will buy Office Depot for $6.3 billion in cash and stock under a definitive agreement reached between the two remaining office-supply chains.
The deal, which had been fomented for months by activist investor Starboard Value, would give Staples $39 billion in annual sales and, according to all parties, the best chance to salvage the specialty channel amidst mounting competition from big-box and online discounters.
“This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment,” said Staples chairman/CEO Ron Sargent.
He said the move would generate at least $1 billion in savings through store closings, headcount reductions, lower administrative costs and greater purchasing, marketing and supply-chain efficiencies. Both chains currently operate about 2,000 stores each worldwide, with the majority located in the U.S.
The acquisition, which is expected to face stringent regulatory review, would add two Office Depot directors to the Staples board, while Sargent would continue as chairman and chief executive, and company headquarters would remain here in Massachusetts.
In a presentation this morning, Staples said its board and senior management team began spitballing a buyout last summer and entered into preliminary talks with Office Depot in September. Both chains have been suffering stagnant same-store sales since before the start of the recession, and were under increasing pressure from Starboard Value to consummate a deal, with the hedge fund last month threatening "a significant leadership change" at Staples if no action were taken.
Staples expects to close the deal by the end of the year, pending approval by the Federal Trade Commission (FTC). The agency nixed a proposed Staples-Office Depot melding in 1997, but in greenlighting Office Depot's merger with OfficeMax in late 2013, acknowledged the changing competitive environment for the office supply channel.
In the interim, Staples said it will remain focused on its ongoing “strategic reinvention,” which includes driving growth in delivery businesses and categories beyond office supplies, while Office Depot will continue its integration of OfficeMax.
In a statement, Office Depot chairman/CEO Roland Smith said, “This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term. 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."
The buyout will be funded by Barclays and BofA Merrill Lynch, which are providing a $3 billion ABL credit facility and a $2.75 billion six-year term loan.