News Column

Office Depot and OfficeMax: In Merger Talks?

February 19, 2013

Marcia Heroux Pounds

Merger

Rumors that Office Depot and OfficeMax are planning to announce a merger got stronger Monday. Boca Raton-based Office Depot, the nation's No. 2 office supply retailer, declined to comment on the speculation. But The Wall Street Journal reported Monday that the office supply retailers are in "advanced talks," according to "people familiar with the matter."

An announcement could come as early as this week, according to the Journal's sources. Office Depot employs 3,500 people in South Florida.

"As a matter of company policy, we don't comment on rumors or speculation," said Brian Levine, spokesman for Office Depot. OfficeMax spokeswoman Nicole Miller also declined to comment on the merger, citing a "long-standing policy" that they do not comment "on market rumors or speculation."

Analysts have said in recent months that the industry is ripe for consolidation as demand for office supplies are forecast to dwindle. Office Depot and OfficeMax trail competitor Staples in both sales and profitability.

Speculation of a merger between Office Depot and Naperville, Ill.-based OfficeMax began appearing in analysts' reports late last year when activist shareholder Starboard Value LP took a stake in the company, demanding the company make changes to boost performance. Starboard Value now holds nearly 15 percent of Office Depot's stock, though BP Partners remains the company's largest shareholder.

There also were reports Monday that Office Depot is in discussions to sell its half of Office Depot de Mexico to Mexican retailer Grupo Gigante, which owns the remaining half. Analysts consider that international investment a stumbling block for any merger deal.

Levine said Office Depot also has no comment on a potential sale of its Mexican investment. Chief Executive Neil Austrianhas officially led the company since May 2011, though was interim CEO while the board searched for a new chief.

If Office Depot and OfficeMax did merge, they would face significant costs, analysts say. In a research report, BB&T estimates the companies would have to spend $300 million to $500 million to close 200 North American stores.

Yet savings from a merger also could be significant, according to a report by Goldman Sachs, with lower costs for purchasing and distribution, advertising, and general and administrative expenses.

Another hurdle would be the Justice Department, which could have antitrust concerns.

Office Depot closed in New York Stock Exchange trading Monday at $4.59, up 9 cents.



Source: (c) 2013 Sun Sentinel (Fort Lauderdale, Fla.) Distributed by MCT Information Services


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