Staples Finally Proposes To Office Depot With $6.3 Billion Merger Deal

A day after it was reported that Staples and Office Depot had entered into advanced talks about a merger, it appears one of the companies popped the big question. Staples will buy Office Depot for $6.3 billion in cash and stock in a deal to bring the No. 1 and No. 2 office supply chains together to do battle with big box stores and online retailers.

The New York Times reports that the biggest remaining U.S. retailers of basic office supplies inked the deal after significant pressure from shared investor Starboard Value.

The activist investor publicly demanded merger talks begin and later threatened to take over Staples management if the company didn’t pursue a merger.

Ron Sargent, Staples’ chief executive says in a statement, that the company expects at least $1 billion in savings through the merger.

“These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies,” he said in a statement.

While the two companies appear to have found a mutually exclusive deal, they will likely face close scrutiny from antitrust regulators.

Sargent says that both the Staples and Office Depot boards had analyzed the regulatory environment, and both believed the deal would be approved.

Still, Sargent tells the Times he couldn’t predict how regulators would evaluate the transaction.

“It’s not our place nor could we publicly handicap what the FTC might say,” he said.

If the deal is completed without the company being forced to sell off substantial assets or retail locations, the combined venture will operate 4,400 stores and have sales of roughly $34 billion.

However, if regulators require divestures amounting to more than $1.25 billion in Office Depot’s revenue or have a material adverse affect on Office Depot’s international operations, Staple can walk away from the deal.

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%.

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 say 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.

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.

Officials with Office Depot and Staples say they expect the deal to close by the end of the year.

News of the proposed merger marks the second time in recent months that activist investor Starboard Value has been able to flex its muscle and push around companies.

Previously, the company roundly mocked Olive Garden and then seized seats on its board of directors just a few short months ago

Staples to Buy Office Depot for $6.3 Billion [The New York Times]