After speculation about a potential deal hit the media days ago, OfficeMax Inc. and Office Depot, Inc. today revealed that they had signed a definitive merger agreement that allows them to combine in an all-stock transaction intended to qualify as a tax-free reorganization. Unanimously approved by the boards of both companies, the merger will create a stronger, more efficient global bricks-and-clicks retail operation better able to compete in the rapidly changing office solutions industry, the companies said in a joint statement.
The combined operation, the companies noted, which would have had pro forma total revenue for the 12 months ended December 29, 2012 of $18 billion, will have significantly improved financial strength and flexibility. The new structure will enable the combined company to deliver long-term operating performance improvements via increased scale and synergy opportunities, they related. Customers will benefit from enhanced offerings through multiple distribution channels and across geographies, the companies asserted.
Under the terms of the agreement as stated, OfficeMax stockholders will receive 2.69 Office Depot common shares for each share of OfficeMax common stock they hold.
The companies said the key strategic benefits of the combination include an all-stock merger of equals structure that will benefit OfficeMax and Office Depot shareholders proportionately as the synergies are achieved. The deal positions the combined company to deliver long-term operating improvement, with greater potential for earnings expansion and improved cash flow generation, they said. The principals said they expect the merger to deliver $400-$600 million in annual cost synergies by the third year following the transaction’s close, leveraging both operating and G&A efficiencies. On a pro forma basis as of December 29, 2012, the combined company would have had more than $1 billion in cash on hand and more than $1 billion available through revolving credit facilities, which provides flexibility to invest in current business and future growth opportunities. The combined company can optimize its shared multichannel sales platform and distribution network, primarily in North America, the companies maintained, and so provide a wide array of services and solutions that could help customers work more efficiently and productively. By implementing best practices in sales, operations and management, the principles expect the combined company to compete more effectively with the many online retailers, warehouse clubs and other traditional retailers that are placing a greater emphasis on office product sales, they stated. By integrating touchpoints across the omnichannel operation effectively, the combined company expects to build lasting brand loyalty.
On the global scale, the merger will combine international businesses that have minimal overlap, strengthening the combined company’s ability to serve customers around the world, according to the statement. Office Depot and OfficeMax said they anticipate sharing customer insights and learnings from pilot programs underway that will help them identify and better fulfill evolving customer needs.
“In the past decade, with the growth of the internet, our industry has changed dramatically. Combining our two companies will enhance our ability to serve customers around the world, offer new opportunities for our employees, make us a more attractive partner to our vendors and increase stockholder value,” said Neil Austrian, Office Depot chairman and CEO. “Office Depot and OfficeMax share a similar vision and culture, and will greatly benefit from drawing on the industry’s most talented people, combining our best practices and realizing significant savings. We are confident that this merger of equals represents a new beginning for our two companies and will allow us to build a more competitive enterprise for the long term.”
Ravi Saligram, Office Max president and CEO, said, “We are excited to bring together two companies intent on accelerating innovation for our customers and better differentiating us for success in a dynamic and highly competitive global industry. We are confident that there will be exciting new opportunities for employees as part of a truly global business. Together, we will have the opportunity to build on our strong digital platforms and to expand our multichannel capabilities to better serve our customers and to compete more effectively. Importantly, this merger of equals transaction will provide stockholders of both companies with a compelling opportunity to participate in the long-term upside potential of the combined company.”