Staples, Office Depot Take Another Step Toward Merger, Enter “Advanced Talks”

Just weeks after activist investor Starboard Value publicly demanded Staples and Office Depot get hitched, the two office supply stores are apparently taking talks of a walk down the aisle seriously.

The Wall Street Journal reports that sources close to the matter say the two office chains are in “advanced talks” to combine in order to better compete with online retailers such as Amazon.

While the WSJ couldn’t pinpoint the price or structure of the proposed deal, it reports that Staples has a market value of about $11 billion and Office Depot has a market value of about $4 billion.

People with knowledge of the talks between the two companies say it isn’t yet guaranteed that a deal will be reached.

If the two companies do combine they would operate roughly 4,000 stores throughout the United States.

Last month, investor Starboard Value, the company that roundly mocked Olive Garden and then seized seats on its board of directors just a few short months ago, publicly pushed for a union between the two chains saying a merger would deliver more than $2 billion in cost savings and help the retailers to better compete with larger chains and online companies.

The investment firm, which has a stake in both companies, increased the pressure for a merger by sending a letter to Staples CEO Ronald Sargent demanding that the company engage advisers to begin work on a deal.

“The best way to maximize value for Staples’ shareholders is through exploring and completing a business combination with Office Depot,” Starboard CEO Jeffrey C. Smith said in the letter. “We believe that now is the right time to pursue such a transaction, and we urge you to immediately retain a reputable investment bank and legal advisers to assist the board in evaluating, structuring and executing a transaction.”

For its part, Staples responded to the pushy investor letter by saying it would take the suggestions under consideration.

Rumblings of a possible merger between Office Depot and Staples began in mid-December.

At that time, Starboard had recently taken a 5.1% stake in Staples and increased its existing holding in Office Depot by about 10%.

While a combined Staples, Office Depot retailer could help the companies fend off competition from online retailers and big-box stores, any pending marriage would face serious antitrust scrutiny.

That added probe by regulators would likely center on the fact that Staples and Office Depot are the biggest remaining retailers of core office supplies.

Office Depot previously purchased the other top office supply store, Office Max, in 2013 for $967 million. That deal was given the go-ahead after regulators deemed there was plenty of competition in the office supply industry.

This wouldn’t be the first go-around for a union between the two retailers, 17 years ago regulators objected to Staple’s attempt to buy Office Depot.

But analysts tell the WSJ, that this time around the companies might face less scrutiny since the office supply landscape has changed significantly with retailers like Amazon and Walmart selling supplies now.

Staples, Office Depot in Advanced Talks to Merge [The Wall Street Journal]

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