$1.25b Staples/Office Depot merger caveat

Staples is not required to buy Office Depot if it is forced to divest Depot assets that bring in more than $1.25 billion in sales in the US.


That was one of the caveats that have been included in the agreement announced today for Staples to acquire its main rival.

Despite today’s announcement, there is still the possibility that the Federal Trade Commission (FTC) in the US may block the deal or require Staples to sell off parts of Office Depot’s contract and retail businesses. If the FTC requires Staples to divest Office Depot assets that account for more than $1.25 billion in sales in the US, then Staples can pull out of the transaction.

The same applies if antitrust authorities impose requirements that have a "material adverse effect" on Office Depot’s operations outside of the US – although what ‘material’ actually constitutes was not specified. Australia, in particular, where Staples and OfficeMax are both strong players, may face some antitrust hurdles.

Should the acquisition agreement be terminated due to antitrust requirements, then Staples will pay a $250 million termination fee to Office Depot.

Explaining the $1.25 billion threshold in the US – which represents about 10% of Office Depot’s US sales, or around 10% of sales at its US Business Solutions Division – Staples CEO Ron Sargent said that it provided protection for Staples shareholders should the acquisition not receive FTC approval or if conditions were imposed.

Sargent said that both Staples and Depot had done their homework on the regulatory issues – referring to the FTC public statement when the Office Depot/OfficeMax merger was approved in November 2013 – but that he couldn’t comment further, except to say that the two firms would "vigorously contest" any FTC challenge to the deal.

Sargent, Depot CEO Roland Smith and Staples CFO Christine Komola took part in an analyst conference call today to explain the financial and business rationale behind the acquisition.

Aside the usual niceties in this type of call the two CEOs exchanged – although nowhere near the levels of the Neil Austrian/Ravi Saligram call in February 2013 – there weren’t too many specifics provided apart from the predicted synergies. Nor could there be – the two companies will have to remain competitors until such time as the FTC approves the deal (


the FTC approves it).

The announcement has certainly sent shockwaves throughout the industry, and we’ll be publishing more reaction and comment in the coming days and, no doubt, weeks on opi.net.

Watch what Staples co-founder Tom Stemberg had to say about today’s announcement in an interview on CNBC.

Framingham (MA), USA