Staples Makes Another Plea to Buy Office Depot

It could be a lyric from an Alanis Morissette song, depending how you define ironic these days. If office supply retailer Staples succeeds in its latest $1-billion bid to buy rival Office Depot's consumer business, it may well be a merger that came a few years too late. "The space has been crushed by Walmart and Amazon. This is the death of another big box sector of commoditized goods that are sold as loss leaders elsewhere," said Sucharita Kodali, a retail analyst at research firm Forrester. Not that either Staples or Office Depot is to blame. The two merchants attempted a $6-billion merger in 2016, only to be rebuffed by a federal judge, who granted an injunction to the Federal Trade Commission on antitrust grounds. Tragically, the underscoring point, of course, is a deal at this juncture is unlikely to matter one way or another. To merge or not to merge If the thesis is "last man standing," then the deal makes sense, said Andrea Weiss, co-founder of The O Alliance and CEO of Retail Consulting. She went on to posit, however, if that's the reason for this proposed merger, the combined entity may still not be a sustainable business that can compete with Amazon. "I really wonder why either exist," Weiss said. While being the last significant legacy big box retailer in a category is helpful in the struggle to survive, it still requires an aggressive strategy to combat the Amazons and Walmarts of the world, as electronics retailer Best Buy successfully proved. Currently Bed Bath & Beyond is attempting its own renaissance with a new generation of private label goods while also optimizing its fleet of physical stores, which entails closing poor-performing locations while renovating others. Office Depot declined to comment beyond what it has stated publicly. Staples did not respond to a request for comment and private equity firm Sycamore, which owns Staples, declined to comment. Terms of the deal Staples is offering about $18.27 per outstanding share of Office Depot's parent, The ODP Corporation, or $1 billion in cash. The bidder said this proposal represents 43% of ODP's 30-day average closing share price of $43.21 as of June 2. In exchange, Staples would buy approximately 1,100 stores, along with the ecommerce website and intellectual property. Staples also pointed out it filed to gain antitrust approval to acquire ODP in November and has made significant progress towards that goal. "With the [ODP's] full cooperation, we are confident that the parties will be able to expeditiously obtain the necessary antitrust approvals for the proposed acquisition of the consumer business," Staples stated in a letter to ODP's board of directors. The bidder warned, however, it would commence a tender offer for the outstanding shares of the company if its negotiations for a consensual transaction are unsuccessful. Hell or high water In response to the offer, ODP said it is reviewing the proposal, but also noted it announced a plan in May 2021 to spin off Office Depot's consumer business from its b-to-b platform, forming two separate publicly traded companies. Office Depot's parent has twice rebuffed offers or attempts at negotiations this year—the most recent of which was on March 15—criticizing Staples' proposal as providing neither enough guarantees nor adequate details on the timing and valuation. While ODP's board of directors said it is open to negotiating some combination of the two businesses, it does not wish to "engage in substantive discussions until the regulatory process is completed." In a January 2021 statement, ODP said it was ready to discuss "a range of transactions that would adequately compensate ODP shareholders for retail synergies and protect ODP from the financial impact of potential regulatory risks." But ODP also noted it does not plan to "engage in a transaction that, as history has shown, would likely result in a prolonged and expensive regulatory review process with no guarantee of success, without a commitment that Staples is willing to bear this risk through a customary 'hell or high water' provision." Etsy Shells Out $1.6B to Buy Depop—and to Reach Gen Z