Staples to Acquire Office Depot in $6.3 Billion Deal

Staples, Inc. and Office Depot, Inc. today announced that the companies have entered into a definitive agreement under which Staples will acquire all of the outstanding shares of Office Depot.

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. Based on Staples closing share price on February 2, 2015, the last trading day prior to initial media speculation around a possible transaction, the transaction values Office Depot at $11.00 per share. This represents a premium of 44 percent over the closing price of Office Depot shares as of February 2, 2015, and a premium of 65 percent over the 90-day average closing price of Office Depot shares as of February 2, 2015.The transaction values Office Depot at an equity value of $6.3 billion. Excluding one-time integration and restructuring costs and purchase accounting adjustments Staples began discussions to acquire Office Depot in September 2014. The agreement has been unanimously approved by each company’s Board of Directors. With the acquisition of Office Depot, Staples will have pro forma annual sales of approximately $39 billion.

“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 Ron Sargent, Staples’ chairman and chief executive officer. “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.”

“This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term,” said Roland Smith, chairman and chief executive officer for Office Depot, Inc. “It is also an endorsement of our many accomplishments and the tremendous success we’ve had integrating Office Depot and OfficeMax over the past year. We look forward to bringing our experience and knowledge to the new organization.”

Staples expects to generate at least $1 billion of annualized cost synergies by the third full fiscal year post-closing. The majority of these synergies would be realized through headcount and general and administrative expense reductions, efficiencies in purchasing, marketing, and supply chain, retail store network optimization, as well as sharing of best practices. Staples estimates one-time costs of approximately $1 billion to achieve its synergy target.

Following the closing of the transaction, Staples’ newly constituted Board of Directors will increase in size from 11 members to 13 members and include two Office Depot directors approved by Staples. Staples’ corporate headquarters will remain in Framingham, Mass. and Sargent will continue to serve as Staples’ Chairman and Chief Executive Officer.

In connection with the acquisition, Staples has obtained financing commitments from Barclays and BofA Merrill Lynch for a $3 billion ABL credit facility, and a $2.75 billion 6-year term loan. The closing of the transaction is not subject to financing conditions. Staples is committed to maintaining its current quarterly dividend of $0.12 per share and has temporarily suspended its share buyback rogram to focus on paying down transaction related debt. Staples is committed to a prudent capital structure that maximizes financial flexibility and supports a balanced and diverse cash deployment strategy, including the resumption of share buybacks over the longer term.

The transaction is subject to customary closing conditions, including antitrust regulatory approval and Office Depot shareholder approval, and is expected to close by the end of calendar year 2015. Staples will remain focused on its strategic reinvention plan, and Office Depot will remain focused on its integration of OfficeMax during this period.