After this morning’s announcement, shares of Office Depot slipped by as much as 0.43% to $9.24 per share, while Staples shares fell as much as 1.47% to $18.73 per share
Office Depot and Staples have officially announced a merger. Staples will acquire Office Depot in a deal worth approximately $6.3 billion. Trading on shares of Office Depot was halted briefly in premarket trading so that the announcement could be made.
Details on Staple’s offer for Office Depot
Staples said it will pay $11 per share in cash and stock for every share of Office Depot. Under the definitive agreement, shareholders of Office Depot will each receive $7.25 per share in cash plus 0.2188 of a share of the combined company when the transaction closes.
Based on Staple’s closing share price on Feb. 2, the deal values Office Depot at $11 per share and is a 44% premium over Office Depot’s closing price on Feb. 2. That was the last day before speculations about a merger between the two office supply chains began circulating in the media. It is also a 65% premium over Office Depot’s 90-day moving average.
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Deal to deliver $1 billion in savings
The two companies said they began negotiating a potential merger in September. The boards of both Office Depot and Staples unanimously approved the deal, which will give Staples about $39 billion in pro forma annual sales.
Management expects Staples to see at least $1 billion in synergies as the merged company cuts global expenses and optimizes its store footprint. They expect to see that savings by the third full year after the closing of the deal. Staples expects to spend about $1 billion in one-time costs to achieve that target. After the deal closes, the number of directors on Staples board will increase from 11 to 13.
Staples secured a $3 billion ABL credit facility from Bank of America Merrill Lynch and Barclays to complete the transaction, which isn’t subject to any financing conditions. The office supply chain also secured a six-year term loan of $2.75 billion.
Will regulators let Office Depot and Staples merge?
The deal is subject to regulatory approval and the approval of Office Depot shareholders. The transaction will further consolidate the office supply retail market by bringing together the last two major retailers in this area. Starboard Value has been demanding that Staples and Office Depot merge for some time.
Office Depot is currently in the process of integrating OfficeMax after it swallowed up the company last year. If regulators allow Staples to buy Office Depot, it would further consolidate a segment of the retail industry that has been struggling due to competition from Amazon and bigger brick and mortar rivals like Wal-Mart and Target