A hostile approach for Corporate Express puts its chief under mounting pressure from industry hawks.
All talk is of 'what happens next' after a speculative bid by Staples unsettled Corporate Express (CE) and sparked huge interest from all corners of the industry.
After weeks of rumours, a €2.5 billion bid by Staples was not a surprise to most observers. And with most outside Boston agreeing that the cash on the table - at €7.25 per share ($10.67 per share) - is well below the asking price, it's also no surprise that the bid was hastily rebuffed by the Amsterdam-based contract stationer.
What did raise a few eyebrows, however, was the open and hostile manner Staples put forward its offer, in the form of an open letter to the public. The world's largest OP retailer said it had made "repeated attempts to engage in discussions" with CE concerning a business combination, only to have been "disappointed" by CE's apparent unwillingness to enter into negotiations.
"We believe strongly that a combination between Staples and CE will offer significant and certain value to CE's shareholders and other stakeholders and will greatly enhance our ability to serve customers throughout the world," wrote Staples' CEO Ron Sargent. "We are writing this letter to demonstrate both our enthusiasm for the proposed transaction and our commitment to pursue a combination with CE.
"We believe our proposal represents a compelling opportunity to create significant value for all your stakeholders. It is our hope that you will find our proposal to be attractive and that we can sit down together very quickly to discuss how we best move forward toward the closing of a transaction. It is of course our preference that both your executive and supervisory boards support our proposal. Because we believe the proposed transaction offers substantial value to stakeholders of both our companies as outlined above, we are committed to undertaking the necessary steps to seeing this transaction to completion."
CE's own CEO, Peter Ventress, had only recently unveiled a new "stand-alone" strategy, in an attempt to end speculation that the company would be split up or sold off. According to Ventress, the stand-alone scenario was "the best way to improve shareholder value going forward" and the best way to combat the 36 percent slide in the firm's share price over the last 12 months. With Staples' aggressive approach, Ventress may not have the time to put his 'go it alone' plan into action before unconvinced shareholders and hedge-fund investors round on the newly-appointed chief.
Sargent was forthright in his opinion on the matter, telling Ventress that: "While we [the board] understand you have recently announced your strategic reorientation plans, we believe that a business combination with Staples at this time would result in superior benefits for CE's stakeholders, and that such benefits can be achieved more completely and quickly than under your strategic reorientation plans, and with a higher degree of certainty. A business combination with us now creates certain cash value for CE's shareholders and eliminates the risks associated with both the achievement of your plan and today's volatile business and market environment. We believe that our proposal is superior to any other alternative available to CE and its stakeholders."
In a note for Jefferies & Company, analyst Dan Binder speculated over the reasons for the timing and manner of the Staples bid.
"After months of speculation about a potential combination of these two companies, we find the timing interesting and can't help but wonder if Staples is looking for a way to extend growth as its own growth potentially slows in a challenging environment. The timing also seems to be ideal as other national office supply operators are not in a position to compete for CE given the state of their own businesses and capital structures. Lastly with CE's stock beaten down and early signs of operating improvement showing last quarter, Staples window of opportunity to buy it at depressed levels could be narrow."
Binder said the bid served as a good starting point to get management and shareholder attention, and despite some evidence of an improvement on CE's books said it would be hard for the firm to turnaround its fortunes in an economic downturn - potentially leaving Ventress out in the cold on the issue. Staples' suggestion that the bid was based on a trading price before the rumour-mill began did not wash with most observers, not least CE itself, which quickly posted a rejection.
"CE is of the opinion that this proposal significantly undervalues the company and fails to reflect CE's prospects," the company said in its reply. "We do not believe the proposal is in the best interests of our shareholders and other stakeholders. We therefore reject this proposal and reiterate our commitment to pursuing our declared strategy."
The bid will also have to move higher to gain any credibility with shareholders. Some believe the offer might have to climb as high as €8, €9 or even €10 per share to encourage CE's heavyweight investors such as Centaurus and AllianceBernstein to budge. But Staples may have just done enough to set the wheels in motion for a combination between the two OP giants at some point in the near future.
"From both strategic and financial perspectives, a transaction here makes a lot of sense in our view, but getting CE management engaged in negotiations has been challenging to date," added Binder. "Although Staples is indicating that it has made a fair offer, we suspect it could move higher before sidestepping management and going straight to shareholders. Of course this could get messy if CE decides to invoke its poison pill."
CE's anti-takeover mechanisms or 'poison pill' would have always prevented a bid such as the one tabled by Staples, and is the reason behind many observers' view that the offer was a speculative attempt to unsettle Ventress and begin negotiations. The move also appears to have been designed to spur other OP firms on the periphery into action.
One such firm keeping a very close eye on proceedings is Lyreco, which operates a lucrative sales partnership with Staples. Could such a move bring Staples' European bedfellow to the table in some as yet unseen capacity?
Speaking from atop a mountain on a family skiing trip, a seemingy relaxed Lyreco CEO Eric Bigeard said he was keeping a very close eye on developments.
"I think everybody knows CE has a number of anti-takeover mechanisms, so an unfriendly bid has very little chance to succeed," said Bigeard. "What's most likely is that the bid will generate a reaction from a number of players, and Lyreco in this perspective is certainly very attentive with what is happening and the opportunities that could arise. In the short-term, both Staples and Lyreco have agreed that nothing will change with the sales partnership that we have and we're running business as usual with the existing contracts and any contracts that are currently under negotiation."
Bigeard's apparent laissez-faire attitude to the Staples/CE news could provide a few pointers as to the drawn out speed at which this affair might unfold and Lyreco's involvement in it. The company hardly appears to be heading off-piste following the announcement (unlike its ski-happy CEO). Either way, it all adds to speculation over what might happen in this dramatic boardroom soap opera. An extended Staples/Lyreco alliance that sees the break up of CE would make a good fit, with Lyreco taking the substantial European slice of the pie while Staples tucks into North America.
Drawing the spotlight onto other industry players throws up little. OfficeMax appears to be out of the picture, as does Office Depot, which surely has too many problems of its own to consider entering into the fray, and would no doubt be advised against any such moves given its less-than-successful track record with integrating acquisitions.
Staples could face regulatory hurdles if it acquires CE outright, such would be the size of the monster it would create, adding fuel to the idea that the input of another firm or a CE break up may be a distinctly possible outcome.
As for the foreseeable future, a higher Staples bid seems extremely likely (probably before this issue has gone to press). Sargent's determination to see this through is obvious and Ventress, who many believed had the ability to turn around the fortunes of the contract stationer, may not get the opportunity before shareholders and interested rival firms increase the pressure and force a sale.
All talk is of 'what happens next' after a speculative bid by Staples unsettled Corporate Express (CE) and sparked huge interest from all corners of the industry.
After weeks of rumours, a €2.5 billion bid by Staples was not a surprise to most observers. And with most outside Boston agreeing that the cash on the table - at €7.25 per share ($10.67 per share) - is well below the asking price, it's also no surprise that the bid was hastily rebuffed by the Amsterdam-based contract stationer.
What did raise a few eyebrows, however, was the open and hostile manner Staples put forward its offer, in the form of an open letter to the public. The world's largest OP retailer said it had made "repeated attempts to engage in discussions" with CE concerning a business combination, only to have been "disappointed" by CE's apparent unwillingness to enter into negotiations.
"We believe strongly that a combination between Staples and CE will offer significant and certain value to CE's shareholders and other stakeholders and will greatly enhance our ability to serve customers throughout the world," wrote Staples' CEO Ron Sargent. "We are writing this letter to demonstrate both our enthusiasm for the proposed transaction and our commitment to pursue a combination with CE.
"We believe our proposal represents a compelling opportunity to create significant value for all your stakeholders. It is our hope that you will find our proposal to be attractive and that we can sit down together very quickly to discuss how we best move forward toward the closing of a transaction. It is of course our preference that both your executive and supervisory boards support our proposal. Because we believe the proposed transaction offers substantial value to stakeholders of both our companies as outlined above, we are committed to undertaking the necessary steps to seeing this transaction to completion."
CE's own CEO, Peter Ventress, had only recently unveiled a new "stand-alone" strategy, in an attempt to end speculation that the company would be split up or sold off. According to Ventress, the stand-alone scenario was "the best way to improve shareholder value going forward" and the best way to combat the 36 percent slide in the firm's share price over the last 12 months. With Staples' aggressive approach, Ventress may not have the time to put his 'go it alone' plan into action before unconvinced shareholders and hedge-fund investors round on the newly-appointed chief.
Sargent was forthright in his opinion on the matter, telling Ventress that: "While we [the board] understand you have recently announced your strategic reorientation plans, we believe that a business combination with Staples at this time would result in superior benefits for CE's stakeholders, and that such benefits can be achieved more completely and quickly than under your strategic reorientation plans, and with a higher degree of certainty. A business combination with us now creates certain cash value for CE's shareholders and eliminates the risks associated with both the achievement of your plan and today's volatile business and market environment. We believe that our proposal is superior to any other alternative available to CE and its stakeholders."
In a note for Jefferies & Company, analyst Dan Binder speculated over the reasons for the timing and manner of the Staples bid.
"After months of speculation about a potential combination of these two companies, we find the timing interesting and can't help but wonder if Staples is looking for a way to extend growth as its own growth potentially slows in a challenging environment. The timing also seems to be ideal as other national office supply operators are not in a position to compete for CE given the state of their own businesses and capital structures. Lastly with CE's stock beaten down and early signs of operating improvement showing last quarter, Staples window of opportunity to buy it at depressed levels could be narrow."
Binder said the bid served as a good starting point to get management and shareholder attention, and despite some evidence of an improvement on CE's books said it would be hard for the firm to turnaround its fortunes in an economic downturn - potentially leaving Ventress out in the cold on the issue. Staples' suggestion that the bid was based on a trading price before the rumour-mill began did not wash with most observers, not least CE itself, which quickly posted a rejection.
"CE is of the opinion that this proposal significantly undervalues the company and fails to reflect CE's prospects," the company said in its reply. "We do not believe the proposal is in the best interests of our shareholders and other stakeholders. We therefore reject this proposal and reiterate our commitment to pursuing our declared strategy."
The bid will also have to move higher to gain any credibility with shareholders. Some believe the offer might have to climb as high as €8, €9 or even €10 per share to encourage CE's heavyweight investors such as Centaurus and AllianceBernstein to budge. But Staples may have just done enough to set the wheels in motion for a combination between the two OP giants at some point in the near future.
"From both strategic and financial perspectives, a transaction here makes a lot of sense in our view, but getting CE management engaged in negotiations has been challenging to date," added Binder. "Although Staples is indicating that it has made a fair offer, we suspect it could move higher before sidestepping management and going straight to shareholders. Of course this could get messy if CE decides to invoke its poison pill."
CE's anti-takeover mechanisms or 'poison pill' would have always prevented a bid such as the one tabled by Staples, and is the reason behind many observers' view that the offer was a speculative attempt to unsettle Ventress and begin negotiations. The move also appears to have been designed to spur other OP firms on the periphery into action.
One such firm keeping a very close eye on proceedings is Lyreco, which operates a lucrative sales partnership with Staples. Could such a move bring Staples' European bedfellow to the table in some as yet unseen capacity?
Speaking from atop a mountain on a family skiing trip, a seemingy relaxed Lyreco CEO Eric Bigeard said he was keeping a very close eye on developments.
"I think everybody knows CE has a number of anti-takeover mechanisms, so an unfriendly bid has very little chance to succeed," said Bigeard. "What's most likely is that the bid will generate a reaction from a number of players, and Lyreco in this perspective is certainly very attentive with what is happening and the opportunities that could arise. In the short-term, both Staples and Lyreco have agreed that nothing will change with the sales partnership that we have and we're running business as usual with the existing contracts and any contracts that are currently under negotiation."
Bigeard's apparent laissez-faire attitude to the Staples/CE news could provide a few pointers as to the drawn out speed at which this affair might unfold and Lyreco's involvement in it. The company hardly appears to be heading off-piste following the announcement (unlike its ski-happy CEO). Either way, it all adds to speculation over what might happen in this dramatic boardroom soap opera. An extended Staples/Lyreco alliance that sees the break up of CE would make a good fit, with Lyreco taking the substantial European slice of the pie while Staples tucks into North America.
Drawing the spotlight onto other industry players throws up little. OfficeMax appears to be out of the picture, as does Office Depot, which surely has too many problems of its own to consider entering into the fray, and would no doubt be advised against any such moves given its less-than-successful track record with integrating acquisitions.
Staples could face regulatory hurdles if it acquires CE outright, such would be the size of the monster it would create, adding fuel to the idea that the input of another firm or a CE break up may be a distinctly possible outcome.
As for the foreseeable future, a higher Staples bid seems extremely likely (probably before this issue has gone to press). Sargent's determination to see this through is obvious and Ventress, who many believed had the ability to turn around the fortunes of the contract stationer, may not get the opportunity before shareholders and interested rival firms increase the pressure and force a sale.
