Business

Published: Tuesday February 19, 2013 MYT 8:04:00 AM
Updated: Tuesday February 19, 2013 MYT 12:20:29 PM

Office Depot, OfficeMax in talks to merge; deal seen soon(update)


NEW YORK: Office Depot Inc, the No.2 U.S. office supply retailer, is in advanced talks to merge with smaller rival OfficeMax Inc and a deal could come as early as this week, a person familiar with the matter said on Monday.

Both companies, which trail industry leader Staples Inc , are under much pressure from investors to boost profitability as well as shareholder value, and a merger would help them to cut costs, close stores and boost their clout with suppliers.

The deal is expected to be structured as a stock-for-stock transaction, the person said, but the source also warned that the talks could still fall apart.

Office Depot has a market capitalization of $1.1 billion while OfficeMax has a market value of $932 million.

Analysts have long called for consolidation in what they see as a cluttered sector, in which sales crumbled during the global financial crisis. Office supply stores are also fighting a battle for relevance, with shoppers increasingly buying their paper, toner and technology online or at mass merchants.

Office Depot declined to comment on the news of a potential deal. Representatives for OfficeMax were not immediately available for comment. The news was first reported by the Wall Street Journal.

Neuberger Berman LLC, one of OfficeMax's top investors and which has pressured the company to do more for shareholders, said it would support a merger with Office Depot Inc depending on deal terms.

Benjamin Nahum, a portfolio manager at the investment firm, told Reuters in an interview on Monday that his preference would be for OfficeMax to declare a special dividend before merging with Office Depot.

"In our view this would facilitate a fair deal," Nahum said, adding that OfficeMax shareholders should be compensated for "the balance-sheet strength that we bring to this combined entity".

Neuberger Berman had called on the company last June to return money to shareholders in the form of a dividend or share repurchases and raised the specter of a proxy fight.

According to Thomson Reuters data, Neuberger Berman owns 4.76 percent of OfficeMax, making it the third-largest shareholder of the Naperville, Illinois company.

Office Depot has also come under pressure, with activist hedge fund Starboard Value LP urging it last September to make some drastic cost cuts and take other steps to improve performance.

In 2011, Office Depot CEO Neil Austrian told Reuters that while the office supply retail sector was ripe for consolidation, antitrust regulators were sticking to an antiquated view of the sector and not letting key players merge.

The Federal Trade Commission rejected a $4 billion merger of Office Depot and Staples in 1997, saying it would lead to less competition and higher prices for customers.

Analysts now play down those concerns as mass merchants such as Target Corp and online chain Amazon.com become bigger players in the sector.

On Friday, shares of OfficeMax closed down 1.29 percent to $10.75 while Office Depot was up 2 percent to $4.59. U.S. financial markets were closed on Monday for a national holiday. - Reuters

Earlier report

Office Depot, OfficeMax in merger talks

NEW YORK: U.S. office supply chains Office Depot Inc> and OfficeMax Inc are in advanced discussions for a merger, a person familiar with the matter said on Monday.

A deal could come as soon as this week, that person said, adding that the talks were ongoing and could still fall apart.

Currently, the deal is expected to be structured as a stock-for-stock transaction, the person said.

Neither company responded to requests seeking comment.

Meanwhile Mexican retailer Grupo Gigante on Monday did not rule out a possible acquisition of the 50 percent stake in the Mexican unit of U.S. office-supply store chain Office Depot that it does not already own, following a report it was in talks to do so.

The company has been considering options related to its 50 percent holding in Office Depot's local unit since 2008, Grupo Gigante said. Last week U.S. news agency Bloomberg said it was in talks to buy the other half.

Gigante has held talks with various financial institutions "with a view to using credit lines for financial purposes to execute its business plan and that of its subsidiaries," the company said in a statement to Mexico's stock exchange.

The business plan does not exclude acquisitions, but it does also include organic growth, the statement said. - Reuters

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