Mega-mergers are not common in the office supply industry, but one is now in the works.
Last February shareholders gave the Office Depot, Inc. and Staples, Inc. $6.3 billion buyout offer a greenlight. Under the agreement Staples, the office supply behemoth, acquires all of the outstanding shares of Office Depot. Office Depot’s shareholders also liked the proposal with 99.5 percent of the votes cast in favor of the deal.
If the merger moves ahead and receives regulatory approval, it will be one of the largest mergers in office supply sector history. Staples (SPLS), is based in Framington, Mass. just outside of Boston. Office Depot (ODP), now known as Office Depot/Office Max after the companies merged in 2013, is based in Boca Raton, Fla. Staples and Office Depot are multinational companies with international offices and e-commerce capability.
While there are no guarantees that the merger will make it to the finish line, regulators are hoping that it will be finalized by the end of the 2015.
Companies such as Office Depot and Staples are currently feeling the pressure from the rapid changes in technology. The industry has been affected by the steady uptick of online sales from online companies such as Amazon.com, Inc.
To be sure, the merger is not new and comes with an 18-year history. On Sept. 4, 1996 the companies announced plans to merge, but a year later the proposal was nixed by the Federal Trade Commission (FTC), who said that the merger would lead to a monopoly.
Second Time the Charm?
Analysts suggested that the Staples-Office Depot merger is likely to get the regulatory nod this time, unlike 18 years ago when the FTC blasted the potential merger as anticompetitive.
The merger could work well for both companies and the industry. “Staying competitive in the current market will be more viable for both companies if they work together, which is a fairly common theme in the field of mergers and acquisitions,” according to an editorial by The National Law Review.
There are signs that regulators are open to such a deal in the office supply industry. In 2013, the Office Depot and OfficeMax merged after they received FTC approval. (See also: Office Depot Broadly Meets Expectations for Q2.)
That said, the Staples and Office Depot merger still has numerous challenges. In order to move forward, the merger needs the nod from antitrust regulators. In August the companies delayed finalizing the merger to provide more information to the FTC. This legal and administrative step puts the merger back 45 days from the time that the FTC receives the information.
Prior to that, in late June the merger saw another blip when a federal judge turned down the proposed merger of Sysco Corporation’s $8.2 billion takeover of US Foods Inc. Regulators said that the combination of the two companies would impact competition and ignite a price hike.
The news rattled investors, many who are banking on the FTC’s blessing of the Office Depot and Staples’ merger. As a result of the news, shares of Office Depot and Staples’ stocks took a dive.
Still, there is a slant of sun in numerous respects. The merger has gotten the nod from Chinese and New Zealand authorities, and it has the backing of online retail giant Amazon.com, Inc. (AMZN) too.
According to various media reports, Jeff Bezos, the CEO of Amazon, has let regulators know that Amazon approves of the deal as it would prefer to face fewer rivals. The e-commerce giant wants to expand its Amazon Business unit, which gives free two-day shipping for orders of $49 or more on office supplies.
Given the rapid changes in technology and the continued popularity of e-commerce, office supply companies have had to expand their Internet-based sales. Staples, for example, gave their their B2B e-commerce site Staples Advantage a makeover in early 2015. The company also relaunched its website Staples.com, the primary site for its online sales. In 2014, Office Depot made its website more search engine friendly.
That said, many proponents of the merger suggest that a merger between Staples and Office Depot is critical to keep the companies and the sector competitive when faced with the realities of the information age. But before the deal is clinched, some analysts warn shareholders that the stock of both companies could see some turbulence. (See related: Staples Buyout of Office Depot Ready to Collapse?)
The Bottom Line
There are no guarantees that the merger between Staples and Office Depot will make it to the finish line, but with support from shareholders, industry experts, and even Amazon.com, a merger by the end of the 2015 looks promising.