Office Depot Inc. (ODP) confirmed it will merge with OfficeMax
Inc. (OMX) in an all-stock deal that values the rival
office-supplies retailer at roughly $1.19 billion.
Office Depot said it will issue 2.69 new shares--valuing
OfficeMax at $13.50 a share based on Tuesday's close--for each
OfficeMax share outstanding. The stock-swap value is a 3.8% premium
to Tuesday's close.
Shares of Office Depot were recently trading 11% higher at $5.55
premarket, while OfficeMax shares jumped 12% to $14.45.
The combined company's board will include an equal number of
directors designated by Office Depot and OfficeMax.
The Wall Street Journal reported Monday that OfficeMax and
Office Depot were in advanced talks to merge as the retailers try
to fight off tougher competition from rivals like Staples Inc.
(SPLS) and Amazon.com Inc. (AMZN).
The deal will combine two companies that have been hammered in
recent years by weak economic conditions, falling sales and rising
online competition.
Still, the two chains have a substantial retail presence. Office
Depot, based in Boca Raton, Fla., has about 1,675 stores
world-wide, annual sales of some $11.5 billion and about 39,000
employees. OfficeMax, based in Naperville, Ill., has about 900
stores in the U.S. and Mexico, roughly $7 billion in annual sales
and approximately 29,000 employees.
Office Depot has also been under pressure from activist hedge
fund Starboard Value LP, which disclosed holding a sizable stake in
September and has pushed the company to accelerate cost-cutting and
take other steps to improve profitability. In October, Office Depot
adopted a shareholder-rights plan, or "poison pill," that is
designed to deter hostile takeovers.
Separately Wednesday, Office Depot also reported it swung to a
fourth-quarter loss as revenue declined, pushing results below
Street estimates.
For the quarter ended Dec. 29, Office Depot reported a loss of
$7.3 million, or six cents a share, compared with a year-earlier
profit of $20.4 million, or four cents a share. Stripping out
one-time items, the company reported breakeven per-share earnings
for the quarter, versus three cents a year earlier.
Revenue fell 12%--or 11% in constant currency--to $2.62
billion.
Analysts polled by Thomson Reuters recently expected per-share
earnings of four cents on revenue of $2.76 billion.
Gross margin narrowed to 29.9% from 30.3% a year earlier.
Office Depot's plan to revive includes remodeling to reduce
average store size, eliminating lower-margin products such as
entry-level laptop computers and relying less on sales
promotions.
OfficeMax is scheduled to post its quarterly and annual results
Thursday.
Write to Melodie Warner at melodie.warner@dowjones.com
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