News Column

Merger Could Benefit Staples

Feb 20, 2013

Donna Goodison, Boston Herald

A merger of OfficeMax and Office Depot has been a "long time in coming" and would be a positive development for the office supply industry -- including No. 1 Staples -- according to Staples founder Tom Stemberg.

"It's good for the industry because there are too many overlapping stores," said Stemberg, considered a pioneer of the office superstore for starting Framingham-based Staples in 1986.

The merged company would be more efficient after closing what analysts expect would be 500 to 600 of OfficeMax's and Office Depot's combined 2,000 North American stores.

Staples stands to win by picking up stores that the Federal Trade Commission likely would force the combined company to divest and by getting spillover customer traffic from others closed due to overlap, according to Stemberg, now a managing general partner at Cambridge's Highland Capital Partners.

"It's a very good thing for Staples," he said.

About 52 percent of Office Depot's stores overlaps with an OfficeMax.

The Wall Street Journal first reported talks between the companies on Sunday night. Both Office Depot and OfficeMax declined comment yesterday.

"Digitization" of the office has resulted in a market that can't be supported by three superstore chains, according to Jefferies & Co. analyst Daniel Binder. "This is most evident in the lackluster sales and margin erosion over the last several years, even as labor conditions have shown some improvement," he said in a report. "If these two companies merged, we do not think the consumer would be put at a disadvantage on price."

Unlike in 1997, when the FTC blocked a merger of Staples and Office Depot based on antitrust issues, analysts expect this marriage would get regulatory approval due to the growth of competition since then from online sellers and mass marketers.

"The office supplies landscape today is very different," Barclays analyst Alan Rifkin said in a report, noting the FTC likely wouldn't base a decision solely on physical store footprints. "Staples, Office Depot and OfficeMax increasingly view players such as Amazon, Costco and Wal-Mart as their competition in addition to more traditional office supplies stores."

If there is a loser in such a merger, Credit Suisse analyst Gary Balter believes it will be suppliers and third-party resellers.

Shares of Staples surged yesterday, gaining 13 percent to close at $14.65. OfficeMax rose nearly 21 percent to $13, and Office Depot saw a 9.37 percent increase to $5.02.


Distributed by MCT Information Services

Source: (c) 2013 Boston Herald

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