Staples Merger Details: Office Depot Gets an Easy Button

Chris Lange

Staples Inc. (NASDAQ: SPLS) announced Wednesday morning that it would be acquiring Office Depot Inc. (NASDAQ: ODP) for $11 a share. The transaction is valued at $6.3 billion and would combine two of the largest office supply store chains in the United States.

Office Depot shareholders will get $7.25 in cash and 0.2188 of a share of Staples stock at closing. This represents a premium of 44% over Office Depot’s closing share price on February 2.

For the sake of comparison, Staples has a market cap of $12 billion and Office Depot has a total market cap of $5 billion.

In terms of the financials of this transaction, Staples obtained financing from Barclays and Bank of America in the form of a $3 billion credit line and a $2.75 billion six-year term loan. As part of the transaction, Staples will add two Office Depot directors, bringing its board to 13 members.

It looks like Starboard Value will get what it wanted when it originally proposed a merger between these two companies. Previously 24/7 Wall St. had noted that Starboard holds a 10% stake in Office Depot and a 6% stake in Staples.

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Ron Sargent, chairman and CEO of Staples, said:

This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment. We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize 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 supplies.

It is worth noting that, should the companies decide to pursue this deal, they might face headwinds from antitrust regulators. It is also worth noting that Staples attempted to buy Office Depot in 1997 but regulators would not allow this purchase due to antitrust concerns.

In 2013, the FTC approved Office Depot’s $976 million acquisition of OfficeMax without taking a closer look or making the retailer close any stores.

Staples CEO also noted that Office Depot would receive a $250 million breakup fee if antitrust concerns cause the deal to fall through.

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Office Depot’s shares were up 1.4% at $9.41 in early trading Wednesday. The stock has a consensus analyst price target of $8.28 and had a previous 52-week trading range of $3.84 to $9.32.

Shares of Staples were down about 9% at $17.32. The consensus price target is $15.84 and the 52-week trading range is $10.70 to $19.40.