CE at centre of takeover rumours

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Corporate Express (CE) last month became the target of intense takeover speculation after it was revealed "a small number" of activist investors were circling the troubled giant.
But, as revealed in OPI‘s Executive Briefing, CE and Office Depot have held direct talks to explore the acquisition of CE’s European assets by the Delray Beach-based company. According to one well-briefed source, the two companies were currently seeking to resolve regulatory issues in the Benelux countries as well as in Germany.
And an insider close to Staples said the Framingham retail giant would also be extremely eager to entertain the notion of acquiring the whole CE company.
Last month, regulatory filings revealed London-based hedge fund Centaurus has built an influential stake in CE. According to the Netherlands Authority for the Financial Markets, Centaurus owns 5.02 percent of CE voting rights, which equates to ownership of around 6.5 percent of the company’s shares.
But OPI has been made aware of at least two other investment organisations that are seeking to build their stake in CE as well as Centaurus. In many cases, activist investors target companies where management has underperformed or where there’s a big cash stockpile or the potential for huge revenue generation.
Some industry commentators believe the investor interest may not be the precursor of a takeover bid as many believe, but may be an opportunistic bet on a larger takeover from the likes of Office Depot, or even Staples.
One analyst told OPI‘s Executive Briefing: "There are other activist-type investors getting involved in this apart from Centaurus and there is also the belief that something is likely to happen with Office Depot.
"We understand that Office Depot is seeking to buy at least its European assets, that is the real buzz in the M&A circles right now. But apparently there are regulatory issues surrounding some of the assets in the Benelux countries and Germany. Office Depot’s talks are independent of the investors."
According to the expert, CE’s target talk stems from the under-performance of its US division, which culminated in the departure of its North American CEO Mark Hoffman.
"The CE business has been under a lot of pressure in the US over the past year," he added. "It is losing a lot of market share and the contracts that it is winning are being won at cut-rate prices and so CE is not getting the margins. It’s struggling big-time in the US and that makes it an easier target."
And, interestingly, the corporate structure of CE has recently softened its robust anti-takeover stance.
The supervisory board structure of the company had in the past made it difficult for anyone to complete any form of hostile transaction. However, OPI understands the board is now becoming more willing to look at acquisition proposals.
Amongst the flurry of speculation, OPI also understands CE has advanced talks to dispose of its printing systems division to a private equity investor. Although the disposal of the printing division is not thought to be connected to any potential takeover, analysts are watching with great interest for the start of any potential break-up activity.
"We think something is going to happen sooner rather than later," said Rob Sweers, an analyst at Credit Agricole’s research arm Cheuvrex.
"Centaurus is a well-known name, especially in the Netherlands. People may speculate about its motives but it shouldn’t be forgotten that this should also be considered as an ordinary investment. Having said that, CE has been an under-performer over the past year-and-a-half and Centaurus has a very good target here.
"CE is under pressure. It has been affected by under-performance and the reorganisation of the US operation has affected sales growth on the top line.
"The office products business is all about scale, the larger you are the better chances you have of turning really profitable.
"Office Depot and Staples are very much geared to the retail sector rather than contract stationery and delivery. They are targeted more at the lower end of the market instead of at the top end with the larger strategic accounts, in which the real strong positions are dominated by the likes of CE.
"If Office Depot and Staples want to balance their portfolios, the attraction of CE is obviously clear. It would mark one further and significant step in the consolidation of the market."
As if the takeover talk of CE wouldn’t provide enough seismic market tremors, some analysts are contemplating the sole acquisition of CE Europe could pave the way for its US division to be snapped up by former US OP executives Jon Ledecky and Eric Watson, who are sitting on a $300 million war chest following the recent IPO of their Victory Acquisition Corp, a special-purpose acquisition company.
The company is known to be seeking investment and acquisition opportunities within a number of B2B distribution sectors in the US.
So, for what the future holds for CE, watch this space.