Office Supply Giants Merge Staples Reaches Deal To Buy Office Depot

Staples Inc. announced Wednesday that it would buy rival Office Depot for $3.35 billion worth of stock, merging the nation’s two largest chains of office supply stores.

The deal would create a company with nearly 1,100 stores and $10 billion a year in revenues. It also raises questions about the future of Office Depot and Staples stores in Spokane and Coeur d’Alene.

The companies said they plan to close some stores nationwide, but open other new outlets. No layoffs are planned.

Office Depot has three stores in Spokane - at 1003 E. Third, 4511 N. Division and 14008 E. Sprague. Two Staples stores are under construction - one at the corner of North Foothills Drive and Division and one in Coeur d’Alene’s Ironwood Plaza.

Spokane’s new Staples store will be about 20 blocks south of the Office Depot store at Division and Wellesley, putting the newly merged company into direct competition with itself.

But that will have no effect on the Staples store under construction, said Bill Tombari, general partner of Tombari Enterprises Ltd. Partnership, which is leasing the property to Staples.

“It’s my understanding that it’s full systems go,” Tombari said, adding that the store would open in mid-November.

The merger also will have “no effect whatsoever” on the Coeur d’Alene store being built, said John Miller, owner of Divcon Inc., the company building the inside of the store.

The deal, however, does call into question any future expansion the companies planned, commercial real estate officials said.

“I’ve sure got to think that if now there’s only two real players and one already has stores in the area, that changes things,” said Dave Carlsen, director of real estate for Hanson Industries, developer of Sullivan Park Center, next to the Spokane Valley Mall.

The two players Carlsen is talking about are the newly merged company and Ohio-based OfficeMax Inc., which has about 388 stores nationwide.

The merger will reshape the 10-year-old “office superstore” business the two companies helped create. The large retail stores have been credited with cutting prices for small buyers.

Together, Staples and Office Depot control about 10 percent of the U.S. retail office supply business, triple the share of OfficeMax, their nearest competitor. The new company will rename its stores as Staples The Office Depot.

“These are two of the fastest-growing companies in business history,” said Thomas Stemberg, who will be chief executive of the new company. “Our objective here is to capitalize on the best of both.”

Stemberg said the company would be able to negotiate better deals with suppliers and cut overhead by combining some operations and facilities to save a total of $447 million in the first three years of the merger.

One of the deal’s selling points is that the companies, while they overlap in some markets, have concentrated mostly in different areas of the country.

“The fit between these two companies is real. They’re not just saying that,” said Ursula Moran, an analyst with Sanford C. Bernstein in New York.

Staples is strongest in the Northeast and California, while Office Depot has most of its stores in the Midwest, Florida and Texas.

Analysts said the new company will need to address Office Depot’s heavy reliance on computer sales, which have slowed recently at the chain.

“Staples has taken on a troubled sister, so to speak,” said L. Keith Mullins, an analyst at Smith Barney. Office Depot’s stock has been languishing lately, trading well below the $25 it reached earlier this spring.

In mid-July, Office Depot’s stock dropped sharply when it reported virtually flat second-quarter profits on a 15 percent sales increase.

Stemberg, the current chairman and chief executive of Staples, clearly will be running the new company.

Office Depot head David Fuentes will be chairman. Martin Hanaka, now Staples’ chief operating officer and president, will keep his title. John Mahoney, who recently came to Staples from Ernst & Young, will be the new company’s chief financial officer.

Eight Staples representatives and six Office Depot directors will sit on the new company’s board and its headquarters will be in Massachusetts, where Staples is based.

, DataTimes ILLUSTRATION: Photo; Graphic: File under: merger