Staples Inc., has struck a definitive agreement deal to acquire its rival Office Depot for US $6.3 billion, bringing a unanimously agreed conclusion by each company’s board of directors to discussions which commenced last September. With the acquisition of Office Depot, Staples will have annual sales of approximately US $39 billion. Under the terms of the agreement, Office Depot shareholders will receive, for each Office Depot share, $7.25 in cash and 0.2188 of a share in Staples stock at closing.
This transaction, if approved by antitrust regulators and Office Depot shareholders, follows Office Depot’s merger with Office Max last year which did receive FTC approval. Sales and margin at all three office products businesses have been in marked decline in recent years due to rising competition from keenly priced, low overhead online suppliers, as well as larger retail chains like Target and Walmart stocking an increased range of stationery products. The new combined business would be better placed to compete and enjoy significant operational savings from the merger. Staples expects it can generate at least $1 billion of annualised cost savings by the third full fiscal year post-closing. The majority of these synergies would be realised through headcount and general and administrative expense reductions, efficiencies in purchasing, marketing and supply chain, retail store network optimisation, as well as sharing of best practices.
Staples new board of directors will increase from 11 to 13 members and include two Office Depot directors, approved by Staples. Staples HQ would remain in Framingham, Mass., with Ron Sargent, Staples chairman and CEO retaining his post.
“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 Sargent. “We expect to recognise at least $1 billion of synergies as we aggressively reduce global expenses and optimise our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office suppliers.”
Head count is likely to reduce significantly across the new business which will impact employees in the 57 countries in which the businesses currently trade via stores, ecommerce sites and direct B2B sales.
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