Mergers and Acquisitions News: Staples Plans Merger with Office Depot
Previously on our blog, we discussed the differences between mergers and acquisitions, as well as the recent increase in merger and acquisition activity. There has been increased activity across different industries to adapt to new market dynamics linked to changes in technology. The newest major merger announcement has come from Staples, the office supply giant. In order to stay competitive with goliath’s like Amazon and Wal-Mart, Staples has announced a plan to purchase Office Depot for $6.3 billion.
Staples and Office Depot have tried to consolidate once before in 1996, but the Federal Trade Commission (FTC) stopped the merger over concerns that it would decrease competition and increase consumer prices. A lot has changed in office supply market dynamics since then, which is precisely what the two companies will be arguing. Specifically, Staples and Office Depot are taking the position that online competitors and bigger store chains have increased competition and reduced prices for consumers, so a merger will also help them stay competitive. To back this up, Office Depot can show that between 2007 and 2013 its annual revenues fell by 36%.
In 2013, the FTC approved a merger between OfficeMax and Office Depot, which could bode well for a merger between Staples and Office Depot. That said, a merger between Staples and Office Depot would be almost twice as big. The merger between Office Depot and OfficeMax created a new company with combined revenue of $18 billion and over 2,500 stores. A merger between Staples and Office Depot would create a company with combined revenue of $34 billion and approximately 4,400 stores.
The proposed merger is subject to antitrust regulatory approval, Office Depot shareholders’ approval, and other closing conditions. The deal is predicted to close by the end of 2015, but if it fails Staples will have to pay Office Depot a $250 million termination fee.
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