Office Depot Rejects Staples’ $2.1 Billion Bid, Offering Smaller Deal Or JV Instead

Office Depot is rejecting a $2.1 billion offer from Staples to buy the company outright, but is offering to either sell just Office Depot’s retail business or combine Office Depot and Staples stores and run them as a joint venture.

In a letter Tuesday (Jan. 19) to Staples’ parent company, Office Depot owner ODP Corp.’s board wrote that it “has unanimously concluded that there is a more compelling path forward to create value for ODP and its shareholders than the potential transaction described in your proposal.”

“We are open to combining our retail and consumer-facing ecommerce operations with Staples under the right set of circumstances and on mutually acceptable terms,” the ODP board wrote. “Indeed, we believe that such a transaction could be executed more efficiently and with far greater certainty and less regulatory risk than your proposal. It would also help maintain competitiveness against nontraditional retailers and optimize ongoing choices for consumers.”

The board said the two retailers could combine through a joint venture, “which we believe is a viable path toward maximizing synergies and efficiencies for both companies that we would expect to result from such a transaction, and which would equally share the risks and benefits between our companies.”

Alternatively, ODP said Staples could simply buy Office Depot’s retail and consumer-facing eCommerce businesses for “a price that enables our shareholders to benefit from such synergies.”

Previous Takeover Bids Failed On Antitrust Grounds 

ODP’s proposal comes at a time when the company is trying to de-emphasize Office Depot’s retail channels and build up a B2B solutions business instead. Its Tuesday proposal seems designed to fit in with that strategy, while also reducing antitrust concerns that sunk two previous attempts by Staples to buy Office Depot.

Staples last tried to acquire Office Depot in 2015 for about $6.3 billion, but that deal got shot down for antitrust reasons. Instead, Staples ended up selling itself for $6.9 billion to Sycamore Partners in a 2017 go-private deal.

ODP wrote in Tuesday’s letter that a deal for just Office Depot’s retail arm stands a better chance of passing antitrust muster. “Though both of these options require regulatory approval, we believe the regulatory risk of pursuing a retail-only transaction to be significantly lower than your proposed transaction,” the board wrote.

“A transaction with you that is limited to our retail and consumer-facing and eCommerce business would eliminate the time, complexity and uncertainty created in your proposal by the need to identify a suitable third-party buyer willing to acquire [ODP’s] B2B business on terms that would be mutually acceptable to our respective companies,” ODP wrote.

ODP’s board said that it “stands ready to discuss a range of transactions that would adequately compensate ODP shareholders for retail synergies and protect ODP from the financial impact of potential regulatory risks. What we do not plan to do, however, is engage in a transaction that, as history has shown, would likely result in a prolonged and expensive regulatory review process with no guarantee of success” unless Staples agrees to compensate Office Depot for a deal’s antitrust rejection.

Office Depot Is Already Shifting Away From Retail 

Staples, which didn’t immediately respond publicly to ODP’s letter, unveiled its latest offer to buy Office Depot for $40 a share on Jan. 11.

However, the bid came as ODP has been working to reduce emphasis on Office Depot’s retail arm and build up a B2B business instead. Office Depot has been closing brick-and-mortar stores, and is also looking to sell off a business called CompuCom.

Office Depot’s retail division has actually performed fairly well during the pandemic as consumers buy cleaning supplies and other essential items in-store or online.

The company reported in its third-quarter earnings release that the division benefited from increased demand for work-from-home and learn-from-home products, as well as for tech items and cleaning and breakroom supplies. ODP also said Office Depot saw a 20 percent increase in eCommerce, including an 82 percent rise in buy online, pick up in store (BOPIS).

However, planned closures of 73 underperforming stores and a weak back-to-school selling season partly offset that, leading to the division seeing a 3 percent year on year drop in revenues.