And so it begins

 

And so it begins

 

Staples’ mammoth integration of CE has started

 

After the twists and turns earlier in the year that would not have looked out of place in a TV soap opera, Staples finally completed its $2.9 billion acquisition ($4.4 billion if you count the $1.5 billion of acquired debt) of Dutch contract stationer CE in July.

 

Was CE’s vehement refusal to engage in dialogue with Staples early on part of a master plan to squeeze the US giant into bumping up its offer or born out of a genuine desire to pursue its seemingly over-ambitious standalone policy?

 

More likely the first, given that CE was so quick to abandon this strategy by announcing that it was ready to jump into bed with Lyreco in a move that surprised virtually all industry observers.
Did the protagonists of this Lyreco/CE tie-up really expect Staples to just back off, or was it another twist in the ‘master plan’ in CE’s board’s quest to increase shareholder value?

 

We’ll probably have to wait for Eric Bigeard’s memoirs to be published before finding out the real truth!

 

Now attention has turned to how Staples plans to deal with the complicated task of integrating the $8 billion contract stationer into its own business, creating a $27 billion entity with 94,000 employees which Ron Sargent hopes will become the "quintessential 21st century retailer", building a global brand operating in multiple channels.

 

The first details of this process were revealed in a special integration strategy presentation that took place on 19 August.

 

First impressions are that Staples knows exactly what it is going to do and has identified the areas which can turn around the greatest gains most quickly and those where it needs to move cautiously in order to avoid disruption to customer service in its delivery business.

 

First up was a warning shot fired by Ron Sargent to vendors supplying both Staples and CE. This is where Staples expects to see the quickest and most significant synergies.

 

"We are currently reviewing and comparing all common vendor contracts and where differences are found we will expect suppliers to provide the more favourable terms," said Sargent.

 

"Additionally, we are now twice the size of our nearest superstore competitor and this should offer us great competitive advantage due to economies of scale and will help us to obtain better terms from vendors in future negotiations."

 

Not unexpected, but still a tough call for vendors whose margins are coming under increasing pressure from lower sales and higher raw materials and transportation costs. In its recent quarterly conference call, ACCO admitted that it expected margins to be further hit by the Staples/CE consolidation.

 

Other action already taken includes the training of more than 100 CE mid-market sales reps on Staples’ "more efficient" model for this customer segment which is the fastest growing part of the company’s entire business. A key part of the synergy plan is to drag the operating margins of the former CE contracts up to Staples’ levels and no time has been wasted working on this.

 

One thing that is not going to be rushed is the consolidation of the distribution network. Sargent said that they would proceed "cautiously" in order not to provoke any possible customer service issues, pointing out that the final consolidation of Quill’s distribution centres took 10 years to achieve.

 

Not surprisingly, the integration process will focus first on the US market, followed by Canada, Europe and finally Australia/New Zealand.

 

Shira Goodman, Staples EVP of Marketing is leading the global integration effort and Tim Beauchamp, CE’s SVP of Distribution Operations is heading up the US integration effort. 12 integration teams have drawn up time lines and action plans and report monthly to the integration steering committee.

 

The make-up of the executive team shows Staples’ confidence in the former CE management. As previously announced, Peter Ventress will lead all non-North American operations while there are senior positions for Jay Mutschler (head of the Fortune 1000 customers business), Peter Damman (head of European contract), Mike Zahra (head of Canadian contract) and Grant Harrod who continues to run the Australian business.

 

Details of staffing cuts were not given but are expected to be provided by 1 October. However, Ron Sargent did confirm that CE sales teams were being integrated and it looks like most of the losses will come from shared services such as HR and IT.

 

Recent large acquisitions in the US (Allied, for example) have been associated with customer and sales force attrition. Staples is determined not to let that happen with CE and has even seen two separate state contracts already combined into one to give improved margins. If that is a sign of things to come and if IT integration goes smoothly, is there anything that can stop Staples steamrollering on to success?