Office Depot Inc. is buying smaller rival OfficeMax Inc. in what it’s calling a “merger of equals,” creating a heftier office-supply company to challenge industry leader Staples.
In the $1.2 billion all-stock deal, OfficeMax shareholders will receive 2.69 Office Depot shares for each OfficeMax share, valued at $13.50 each.
Together, the two companies said they expect to better “meet the growing challenges of a rapidly changing industry,” anticipating annual revenue of about $18 billion. Staples had $25 billion in sales in 2011.
“Consumers and business-to-business customers are increasingly demanding a seamless omnichannel experience across retail stores, direct sales, telesales and digital environments,” the companies said in a statement. “By integrating these touchpoints effectively, the combined company expects to build lasting brand loyalty.”<p>Amazon.com and other online vendors, as well as megachains such as Wal-Mart, Costco and Target, are encroaching on the office supply market, which research group IBISWorld values at $21.2 billion.
OfficeMax and Office Depot have suffered declining sales since the recession and fight to generate a 3 percent profit margin, compared to a margin of 8 percent or more at Staples, said IBISWorld analyst Dale Schmidt.
“The hope is that the resultant company could cut redundant costs, raising its profit margin, while retaining a market share that will compete with Staples,” he said. “However, with the ever-increasing popularity of online sales and big-box retailers, the brick-and-mortar chains of both Staples and the merged company will struggle to grow significantly.”
Both companies’ boards unanimously approved the arrangement. The board of the fused business will feature equal representation from Office Depot and OfficeMax.
The current chief executives – Neil Austrian of Office Depot and Ravi Saligram of OfficeMax – will keep their jobs until a new head honcho is chosen.
The official announcement of the deal came several hours after Office Depot pulled an earlier, mistakenly posted version off its website on Wednesday morning.
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