Staples sells stores to OfficeMax, easing merger with Office Depot
Mar. 12, 1997
BOSTON (AP) _ In a deal likely to win over government monopoly regulators, office supply retailers Staples and Office Depot agreed Wednesday to sell 63 stores to their biggest competitor.
The $108.75 million cash deal expands OfficeMax Inc. into new cities and is intended to build the chain into a bigger rival of the combined Staples and Office Depot.
Two days before the deal was reached, the Federal Trade Commission said it would oppose Staples' purchase of Office Depot. The FTC said it was concerned the new company would control the market for office supplies in many cities and eventually raise prices.
By selling the stores to OfficeMax, Staples and Office Depot appeared to satisfy FTC concerns that the merger would have left some cities with a single ``superstore'' chain.
``I would be very surprised if this deal doesn't go through,'' said Jim Stoeffel, an analyst with Smith Barney in New York. ``It certainly alleviates the FTC's problem because you still have two competitors in these markets.''
Cleveland-based OfficeMax, meanwhile, gains an instant presence in markets where it hadn't been operating. It also bought the stores at a good price because of the FTC pressure on Staples, analysts said.
The sale was announced a day before the FTC would have gone to court to block the $4 billion Staples-Office Depot merger, a move Staples had pledged to fight.
Immediately after the announcement, the companies agreed to hold off on closing the merger until at least Monday to give regulators time to review the deal again. Both the OfficeMax sale and the merger are subject to FTC approval.
The FTC wouldn't comment on whether the OfficeMax sale made approval of the merger more likely.
``If they present us with something serious to talk about then we'll talk,'' FTC spokeswoman Victoria Streitfeld said.
But Staples appeared confident that federal regulators would lift their opposition to the merger.
Thomas Stemberg, Staples' chief executive and chairman, said in a statement that the deal ``paves the way for Staples Inc., operator of Staples, The Office Depot Superstores, to realize enormous cost savings.''
Todd Krasnow, the company's executive vice president for marketing, said the deal ``clears the way'' for the Office Depot merger.
The company said the stores being sold to OfficeMax are similar to ones previously approved by the FTC's staff.
OfficeMax spokesman Juris Pagrabs called the sale ``a win-win-win situation for OfficeMax, Staples and Office Depot, the shareholders and consumers.''
Several analysts said reaching an agreement with OfficeMax was a no-brainer for Staples, since the merger would have been endangered without it. Wall Street has estimated acquiring Delray Beach, Fla.-based Office Depot will immediately boost Staples' earnings by 6 cents a share.
``I don't think they want to waste six months of corporate existence to come away with nothing. I don't think that would be the best in anybody's interests,'' said Aram Rubinson of PaineWebber.
``Staples finally had to look at this and see the merger was too attractive to pass up over basically pennies per share,'' Stoeffel said.
OfficeMax said it was acquiring stores in key markets where it doesn't have a presence, including Baltimore, Washington, San Diego, Tampa-St. Petersburg, Fla., and Louisville, Ky.
The agreement also includes 14 stores in the Los Angeles area, and stores in 11 other markets.
With the purchase, OfficeMax would boost its number of stores to 638. Staples and Office Depot still would have more than 1,000 stores between them.
Staples shares fell $1.25 to $22 after the announcement of the deal. Office Depot gained $3.62 1/2 to $23 and OfficeMax rose $1.75 to $15.