Staples joins up with Office Depot

Hey there, time traveller!
This article was published 05/02/2015 (3985 days ago), so information in it may no longer be current.

NEW YORK — Evolving shopping habits have forced yet another retailer to think outside of the box.

Staples, the nation’s largest “big box” office supply chain, announced Wednesday it’s spending about US$6 billion to buy its second-ranked rival, Office Depot.

The acquisition reflects a reversal of fortunes for big-box retailers. Founded in the late 1980s, Staples and Office Depot were among a group of chains led by Wal-Mart that opened thousands of supersized stores during much of the next two decades for shoppers who wanted to buy in bulk.

But shopping patterns changed in recent years as North Americans have grown increasingly deal-hungry and comfortable with online shopping. Competition from smaller stores and the rise of online retailers like Amazon.com also have hurt big-box chains.

Office supply retailers also have some unique issues, though. The impact of technology on the workforce has dramatically shrunk the demand for items that were once their bread-and butter, including personal computers, ink cartridges and printers.

In the 1990s, office-supply retailers catered to the throngs of workers setting up home offices. But, now with the popularity of smartphones, people can work anywhere. They also are buying fewer PCs and other big gadgets in favour of small devices like smartphones.

Staples has been ahead of its peers in responding to the changes. It’s been changing its mix of products in the stores, beefing up services such as copying and offering more items online. It’s also been opening smaller stores and investing in services aimed at specific small businesses.

But the brick-and-mortar office supply chain business has continued to struggle as online sales have grown. Last year, office products sold online hit US$9.2 billion, accounting for 24 per cent of the overall office supplies category. That’s up from US$2.6 billion, or seven per cent of the market, in 2004, Forrester Research said.

Meanwhile, Office Depot’s sales have been mostly on a downward slope since its fiscal 2007 year when they peaked at US$15.5 billion, research firm FactSet said. Sales rose in the latest year because of its deal with OfficeMax. Staples’ sales peaked in fiscal 2011 at US$25 billion and have been down since.

Hedge fund Starboard Value LP, which disclosed a 5.1 per cent stake in Staples in December, last month publicly urged the company to make a move on Office Depot. Staples and Office Depot tried to combine forces before but were blocked by anti-trust regulators.

That was almost 20 years ago, however, and with the boards of both companies signing on unanimously to try it again, they appear confident the landscape has changed substantially.

The deal, which comes a little more than a year after Office Depot acquired OfficeMax for US$1.2 billion, still has to get a nod from the Federal Trade Commission. And Office Depot shareholders, who will own about 16 per cent of the combined company, have to approve it.

In the proposed deal, Office Depot Inc. shareholders will receive US$7.25 in cash and 0.2188 of a share in Staples Inc. at closing. The transaction values Office Depot at $11 per share, which is based on Staples’ Monday closing stock price — the last trading day before initial reports of a buyout began to leak. The companies put the deal’s equity value at US$6.3 billion.

On news of the deal, which is expected to close by year’s end, shares of Staples fell US$2.15, or 11.3 per cent, to US$16.86 in afternoon trading. Office Depot’s stock added 26 cents to US$9.54.

The combined company, which will have 4,000 stores, means the two retailers no longer have to compete. Annual sales of the new office-supply giant are expected to approach US$39 billion. Additionally, Staples expects to realize at least US$1 billion in annual cost savings by the third full fiscal year after the transaction is complete.

— The Associated Press