Office Depot to buy OfficeMax for $1.17 billion in stock

Overlapping Stores

Both chains have been closing locations and that trend would accelerate with a merger as about 50% of their store territories overlap, Daniel Binder, an analyst for Jefferies & Co. in New York, wrote in a note to clients.

The combined OfficeMax and Office Depot may close or sell as many as 600 locations, giving Staples an opportunity to increase sales in those areas, Gary Balter, an analyst for Credit Suisse Group AG in New York, wrote in a note to clients.

Staples had 2,295 stores worldwide as of Jan. 28, 2012. In statements earlier this month, Office Depot said it had about 1,675 global locations and OfficeMax said it had about 900 stores in the U.S. and Mexico.

“It makes sense to close a lot of stores and fulfill orders out of facilities that specialize in packing and delivering, using less-expensive real estate,” Erik Gordon, a business and law professor at the University of Michigan in Ann Arbor, said in an e-mail Feb. 19. “It’s become a cost-driven, commodity business. Everyone sells Bic pens and Swingline staplers. The competitive advantage is to sell them cheaper and get them delivered quickly.”

Antitrust Questions

The deal may be challenged by the Federal Trade Commission, according to David Balto, an antitrust attorney in Washington who was the FTC’s director of policy for six years ending in 2001. He worked on the FTC’s lawsuit that stopped Staples from acquiring Office Depot in 1997.

Balto said reducing the number of big-box office retailers from three to two may be viewed as anti-competitive, just as it was back then. In addition, the Obama administration has been tough about enforcing antitrust laws, he said.

“They are facing a stiff wind,” Balto said in a phone interview. “You have three players right now and they want to reduce it by one. That rivalry results in better pricing and services for consumers.”

The industry has “dramatically changed” since 1997 with consumers having more choices since the emergence of online competitors such as Amazon.com Inc., Binder said in the same note. It is these competitors and the digitization of the office that can no longer support three national office-supply chains, he said.

‘Natural’ Combination

As small businesses, the main customer of all three chains, shifted to using fewer pens and filing cabinets, the companies have broadened their selection into technology products such as software, tablets and smartphones. The chains have also branched out into offering more services such as copy printing and computer repair.

There has been speculation of a merger between the two smaller office retailers since last year. A combination of Office Depot and OfficeMax would be “natural,” Staples Chairman and CEO Ronald Sargent said last year at a conference. The FTC is more likely to allow such a combination than if Framingham, Massachusetts-based Staples were to buy either company, he said.

Bloomberg News

<< Page 2 of 2

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Comments
comments powered by Disqus