Office Depot to buy Office Max as an attempt to compete with Staples.
Office Depot Inc. and Naperville-based OfficeMax Inc. confirmed Wednesday that they're planning to merge but left some key questions about the deal unanswered.
The all-stock deal calls for Office Depot to issue 2.69 new shares of common stock for each outstanding common share of OfficeMax. But officials declined to say where the newly merged company would be headquartered, who would sit in the CEO seat or even what it would be called.
OfficeMax CEO Ravi Saligram and Office Depot CEO Neil Austrian presented a united front during a Wednesday conference call with analysts, taking turns to explain the specifics of the deal.
"It takes two to tango," Saligram said. "Lo and behold, Neil and I have decided to tango."
The announcement of a merger, which Saligram said would "create a stronger, more global, more efficient competitor," put to rest years of speculation about a deal. The merger would unite the No. 2 company in the stationery and office supplies industry, Boca Raton, Fla.-based Office Depot, with the No. 3 company, OfficeMax, headquartered off Interstate 88.
A merger between the two chains "has made sense for years," Credit Suisse analyst Gary Balter wrote in a note this week.
Market leader Staples also would benefit from a merger, BB&T Capital Markets analyst Anthony Chukumba said.
"Clearly, you can't make this deal work unless you close a bunch of stores," he said. "Store rationalization is long overdue, and Staples will clearly benefit from just having fewer stores to compete with."
OfficeMax, with about 29,000 employees, operates 978 stores, including 10 in the Chicago area. Office Depot has about 39,000 employees and operates 1,675 stores, including seven in the Chicago area.
The two CEOs wouldn't say how many stores would be closed, but Balter has predicted about 600.
If the merger is completed, the company's board would have an equal number of directors chosen by Office Depot and OfficeMax. Based on Wednesday's stock closing price, the deal's value is about $976 million.
The combined company would have $18 billion in sales and achieve $400 million to $600 million in savings over three years, according to company officials.
Office Depot shareholders would own about 54 percent of the company and OfficeMax shareholders 46 percent.
It was not clear, though, whether those stockholders would be satisfied with the deal. One of OfficeMax's largest shareholders, Neuberger Berman, said this week that it would support a deal, depending on the terms.
The deal also is subject to approval by regulatory agencies, including the Federal Trade Commission.
Officials declined to say who would lead the combined business or where it would be located once the "merger of equals" is completed, likely by the end of the year.
"During the appropriate times ... our board will make the right decision," OfficeMax's Saligram said. "Now, we're independent companies, and we've got to go through lots of processes."
Saligram and Austrian will be considered to lead the company, but until a leader is chosen, they will remain in their positions.
"From the time we started talking, Ravi and I have grown very fond of each other. It's very clear we can work well together," Austrian said.
Their proposed partnership didn't begin well. The announcement of the planned merger was buried in an earnings release posted prematurely on the Office Depot website early in the morning, then quickly removed. The companies recovered, and about 8:30 a.m., they issued a joint statement announcing the proposed merger.
The mishap will likely be investigated by stock exchanges and regulatory organizations, according to a Chicago financial attorney.
"I am highly confident that the New York Stock Exchange, the Nasdaq and the Securities and Exchange Commission will be looking very closely at who pulled the trigger, who knew about this, and was this in good faith?" James McGurk said.
McGurk said he was not suggesting wrongdoing.
"When you think about it, you have two boards, lots of investment advisers, lawyers, and deals break down at the last minute. Are there lots of ways it could happen? Sure," he said.
OfficeMax shares closed Wednesday down 91 cents, or 7 percent, at $12.09. Shares of Office Depot closed down 84 cents, or nearly 17 percent, at $4.18.
Reuters contributed.
crshropshire@tribune.com
Twitter @corilyns
OfficeMax, Office Depot agree to merger
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OfficeMax, Office Depot agree to merger
