Office Depot Merges With Office Max
Yesterday, office supply retailers Office Depot (Is ODP buy, sell, or hold?) and Office Max (Is OMX buy, sell, or hold?) announced an all-stock merger, worth approximately $1.2 billion, that would merge the second and third largest office supply chains together into a single entity.
This consolidation would give both companies more firepower to tackle market leader Staples (Is SPLS buy, sell, or hold?
) and e-commerce giant Amazon (Is AMZN buy, sell, or hold?
) and wholesale retailer Costco (Is COST buy, sell, or hold?
). Daily Chart
The merger is a sign of the times, as big box retailers, such as Office Depot, Office Max and Best Buy, have been unwillingly transformed into massive showrooms for online shoppers, who finalize their purchases online - often from Amazon - after testing out the products hands on. Meanwhile, discount chains such as Wal-Mart (Is WMT buy, sell, or hold?
), Target (Is TGT buy, sell, or hold?
) and Costco have made specialty big box retailers such as Office Depot and Office Max increasingly irrelevant. Office Depot, Office Max and Staples were all founded in the 1980s, and enjoyed a wildly profitable heyday in the 1990s, when big-box retailers were all the rage. After the recession, however, consumers and businesses cut back on purchases of office products. All three stores have been forced to respond with store closings, steeply discounted costs and a reduced workforce to compensate for stagnant or declining sales. Despite being dominated by only three major names, the office retailer industry - worth approximately $21.2 billion - is still considered to be too fragmented. Staples currently leads with a 35% market share, Office Depot trails at 26.1% and Office Max comes in at 15.6%. Together, the newly forged alliance of Office Depot or Office Max will become the largest office retailer in the United States. From the merger, Office Max shareholders will receive 2.69 shares of Office Depot stock - which values the deal at roughly $13.50 per share - a very slight premium to its previous closing price of $13. Office Max claims that the new partnership will result in $400 million to $600 million in cost-saving synergies. The full merger is expected to complete by the end of 2013. The new company will remain unnamed until after a CEO is appointed. The deal comes after both Office Depot and Office Max posted poor fourth quarter earnings. Office Depot reported a loss of 6 cents per share, or $17.5 million, while revenue slid 12% to $2.62 million. Office Max reported a loss of 39 cents per share, on revenue of $33.9 million, while revenue declined 7% to $1.7 billion. Despite being expected to easily pass a shareholder vote, antitrust hurdles may trip up both companies and their investors. In 1997, Staples attempted to purchase Office Depot, but was stopped short by the Federal Trade Commission, which claimed that the combined company would have an unfair advantage in the market. Even if the combined company passes regulatory approval, the company will have a long, hard road to recovery ahead of it. Downsizing stores, reducing inventory and ramping up e-commerce initiatives would be a promising start. Other News About OMX
Office Depot in $1.2 billion deal to buy rival OfficeMax In a move that didn't surprise anyone, the two office supply retailers combine. Will the massive office merger result in more firepower, or twice the vulnerability? Will Office Depot get an all clear from federal regulators? Other Stocks in the News
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Published on Feb 21, 2013
By Leo Sun