Staples has agreed to purchase rival office supplies veteran Office Depot in a deal valued at roughly $6.3 billion. The acquisition will reduce the number of major office supplies chains from two to one – that is, if it can get regulatory approval.
This isn’t the first time that the two competitors have attempted to merge. Nearly 20 years ago, a proposed merger was shot down by regulators but the retail landscape has changed dramatically since that time.
Simply put, people aren’t buying pens and pencils like they once were. And when they do need office supplies, shoppers are increasingly turning to discount chains like Wal-Mart and Target or buying online. The shift is one of the reasons regulators approved a merger between Office Depot and OfficeMax in 2013.
A merger would result in cost savings of about $1 billion per year, Staples said, by better optimizing their retail footprint and minimizing redundancy. In other words, they’ll be closing some stores and merging distribution which will inevitably result in some job losses.
Office Depot shareholders will likely be pretty happy with the arrangement. Upon closing, they’ll receive $7.25 in cash and 0.2188 of a share in Staples stock for every Office Depot share in their possession. That comes out to roughly $11 per share which represents a 44 percent premium over the stock’s clocking price on February 2.
Should regulators again block the merger, Staples has agreed to pay Office Depot $250 million.