Staples To Acquire Office Depot In $6.3 Bln Cash, Stock Deal

(RTTNews) - Confirming media speculation, office supplies retailers Staples Inc. (SPLS) and Office Depot, Inc. (ODP) Wednesday said they have entered into a definitive agreement for Staples to acquire all outstanding shares of Office Depot in a cash and stock deal. The transaction values Office Depot at an equity value of $6.3 billion. Office Depot shares climbed in pre-market trading.

Staples said the transaction generates significant value for shareholders, and is accretive to earnings per share in the first year post-closing.

Under the terms of the agreement, Office Depot shareholders will receive, for each share, $7.25 in cash and 0.2188 of a share in Staples stock at closing.

Based on Staples closing share price on February 2, the last trading day prior to initial media speculation around a possible deal, 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 the same day.

The agreement has been unanimously approved by each company's Board of Directors. With the acquisition of Office Depot, Staples will have pro forma annual sales of about $39 billion.

The deal is expected to close by the end of calendar year 2015. Staples will remain focused on its strategic reinvention plan, and Office Depot will concentrate on its integration of OfficeMax during this period.

Staples said it began discussions to acquire Office Depot in September 2014. It was reported last month that Starboard Value LP, which owns roughly 6 percent stake in Staples and around 10 percent of Office Depot, was calling for the two to merge. Media reports indicated earlier this week that the two firms were in advanced talks to merge.

A combination of the two is likely to undergo a stringent scrutiny by antitrust regulators. The watchdogs in 1997 had sued successfully to block the same proposed merger.

"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 Ron Sargent, Staples' chairman and chief executive officer.

The company expects to generate at least $1 billion of annualized cost synergies by the third full fiscal year after 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, as well as 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' newly constituted Board of Directors will increase to 13 members from 11 members, and include two Office Depot directors approved by Staples.

Staples' corporate headquarters will remain in Framingham, Massachusetts, and Sargent will continue to serve as Staples' Chairman and Chief Executive Officer.

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 6-year term loan.

Staples said it is committed to 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.

SPLC surged close to 11 percent on Tuesday to settle at $19.01. The stock was down 2.7 percent in pre-market.

Meanwhile, ODP surged 21.6 percent on Tuesday to close at $9.28, and climbed 6.6 percent in trading before the market open on Wednesday.