Office supply retailer Staples has signed a definitive agreement with its rival Office Depot to acquire the latter in a $6.3bn deal, creating a super office-supply giant.
Unanimously approved by each company’s Board of Directors, the terms of the agreement entail Staples to acquire all of the outstanding shares of Office Depot.
However, the deal will be subject to approval from Federal Trade Commission (FTC) which is likely to probe the transaction for violation of unfair trade practices. FTC earlier rejected Staples’ first attempt to buy Office Depot in 1997.
Taking a second shot at Office Depot, Staples began discussions for the same September last year.
Staples’ chairman and chief executive officer Ron Sargent said: "This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment.
"We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies."
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By GlobalDataOffice Depot, Inc chairman and chief executive officer Roland Smith said: "This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term.
"It is also an endorsement of our many accomplishments and the tremendous success we’ve had integrating Office Depot and OfficeMax over the past year. We look forward to bringing our experience and knowledge to the new organization."
With the deal, Staples hopes its pro forma annual sales will climb upto approximately $39bn. It expects to achieve at least $1bn of annualised cost synergies by the third full fiscal year post-closing, with majority of these to be realised through headcount and general and administrative expense reductions, efficiencies in purchasing, marketing, and supply chain, retail store network optimisation, as well as sharing of best practices.
Barclays and BofA Merrill Lynch will commit $3bn ABL credit facility, and a $2.75bn, six-year term loan to finance the deal.
Entry of online players as Amazon has changed the game of office supply market, with customers too flocking more to other large supply stores as Target and Walmart for their office supplies. Both Staples and Office Depot have been closing hundreds of stores a year in response to weak sales.
The new deal will create a sprawling international retail business with $39bn in annual sales and 4,000 stores.
The companies said they expect the transaction to close by year-end.