February 4, 2015
Staples to acquire Office Depot
And then there was one … office supply chain. Staples and Office Depot announced today that the companies have entered into an agreement for Staples to acquire its smaller rival for $11 per share. Speculation that the deal would take place has run rampant since it became public in December that Starboard Value had accumulated six percent of Staples’ stock as well as a 10 percent stake in Office Depot.
Starboard Value’s CEO Jeff Smith, labeled "the investor CEOs fear most" by Fortune, was reported to be pushing the companies to merge. Neither Mr. Smith nor the boards of Staples and Office Depot seem concerned about the inevitable anti-trust considerations raised by a merger of the two top players in a retail vertical.
"This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment," said Ron Sargent, Staples’ chairman and chief executive officer, in a statement. "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."
Both Staples and Office Depot have continued to look for ways to remain competitive, not only in their own head-to-head competition, but also in the face of a growing list of rivals, from Amazon.com to Walmart.
Office Depot CEO Roland Smith, who in November called the first year transition after the merger with OfficeMax "a huge success," finds himself in the position of being the acquired rather than the acquirer this time around.
"This transaction delivers great value for our shareholders and creates a company ideally positioned to serve our customers and grow over the long term," said Mr. Smith. "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."
BrainTrust
Recent Discussions
Discussion Questions
Is the long-term prognosis for Staples and Office Depot better as a merged company? How do you expect the Federal Trade Commission to respond to the merger of the top two office supply chains?
Poll
Reminds me of the Kmart/Sears merger, two wounded retailers trying to hold the other up. The reality is few people are going to either one of those retailers to buy copy paper, ink or business machines. The demographic and demand have fundamentally changed which has nothing to do with Amazon or anti-trust laws.
I can’t see any marketing program that will change the reality of low need for such an over-stored category.
Well, it just means there will be another big hole in strip centers.
I think a few years ago there would have been anti-trust noise made. But now? Everyone sells the same stuff. Nothing really unique. It won’t even be a blip.
Retail 2.0 was about efficiency and differentiation from your retail store competitors.
Retail 3.0 is all about creating a survival strategy to compete in an omni-channel world where there is fierce competition online.
Retail is no longer about “chains” or “classes of trade.” The real monopolies for office supplies will become the online giants like Alibaba, Amazon and maybe Walmart if they can transform to omni-channel.
The real competitors to a merged Staples/Office Depot company are not the current or recent merged office supply companies. Instead Walmart, Amazon and a variety of other focused online office supply companies are the real long-term threats to the recently-merged company.
I believe the FTC will approve this merger with little demand for any divestiture of locations. The FTC mandate is to protect competition, not competitors. With a stronger Staples/Office Depot presence, competition with the above noted brick-and-mortar and online competitors should be enhanced.
While this may be good for the two companies, I don’t see how the consumer benefits at all. Without Staples v. Office Depot competition, they’ll lose out to online businesses. Hard to believe that the FTC won’t see this as anti-competitive.
I’m not certain that we need even ONE office supply chain with physical stores. 2015 is certainly going to be the year that multiple brands drop from view. How long will the new Staples be viable?
The merger is good for shareholders and lousy for consumers. Hopefully the FTC will nix it as being anti-competitive. We have seen over and over again how the lack of competition in any industry does not benefit consumers. The latest glaring example: Fuel prices are down by close to 50 percent, yet airlines have yet to lower their fares. Why? Through mergers and acquisitions many routes are no longer competitive. No competition equals higher fares. The same could be true of office supplies if this proposed merger goes through.
Not a good deal for the consumer. Competition among retailers is what benefits the consumer. This merger benefits the major stock holders and Wall Street. The only other retailers left in the segment are regional and single-store owners. If they even had a chance before, it will be impossible to compete after this merger. The FTC should prevent it.
The office products industry has seen massive changes in the past 20 years. The current state of the business appears to be moving along predictable lines—the only real question was timing.
I suspect the merged company will be much leaner. As currently organized and formatted, the growth years are in the rear view mirror rather than ahead. Nothing short of a major transformation of the business model will bring back the good old days. That said, these are difficult business decisions that impact many lives and I wish them the best.
55 percent to 85 percent of all M&A is a failure. The measure of success of course is to increase shareholder value. At the far end of the failure scale is horizontal M&A that involves mature companies in mature markets facing great outside competition. Sounds like Staples/Office Depot. This type of M&A just rearranges the deck chairs while paying a lot of money to investment bankers, lawyers and accountants. It generally does not create synergies (they will never see $1 billion) and often creates dis-synergies (close an Office Depot store and instead of the customer going to the nearest Staples, they go online and discover Amazon can give them exactly what they need). Integration will be difficult because of the maturity of the cultures of the individual companies.
Of course, someone is going to say that this is great because instead of having one company with X percent SOM and another with Y percent SOM, you are going to have a company with X plus Y percent. That changes absolutely nothing.
From a shareholder’s point of view, this will be a disaster. In five years the market cap of the combined companies will be no greater than the current market cap of Staples.
It’s not totally clear yet if Staples will retain all three “brands,” including Staples, Office Depot, and Office Max, however it seems almost pointless to do so. Most people will be concerned that the absence of competition will drive prices much higher, however, we need to keep in mind that Staples will still be competing with Amazon and other e-commerce retailers.
I find it hard to believe that there is not a profitable space in the market for two big office supply retailers, but the financial aspects of this proposed deal seem compelling for both retailers.
It will be interesting to see if there is a role for Roland Smith post acquisition, or if he will take the money and run. As far as the FTC is concerned, there may be some monopolistic situations to deal with on a market-to-market basis, causing some stores to close and others to be sold off.
Along those lines, as a consumer, I would be concerned that one big player may gradually feel they can “margin up” given the dearth of competition. If that happens, shoppers will reward some of the online and regional alternatives as they emerge.
There can only be one. That being said, can the one truly prosper in the changed office supply market? This is the question that many have pointed out in earlier comments.
I hope so as there are times when going to the store is the only way to make an informed decision. For example it is difficult to make a decision on a new desk, etc., when there are none to test drive in the store.
We have all three of these retailers open close to our offices. While there may not have been a lot of price competition on the same items between the three they did carry enough different items to allow a broad selection of immediately available items.
In the world of category-killer retail, being the last competitor in the race can sometimes lead to a cul de sac, not a superhighway. Ask our friends in the consumer electronics or book businesses.
I cringe every time I read “$X in synergies” in a merger announcement, because what that really means is the amount of capital that will be squeezed out of the deal by the large shareholders.
Here in Tucson, we’ve already seen store closures due to the Depot-Max merger and Staples has just left town, leaving us small business owners and teachers with fewer places to buy supplies, less variety and less price competition.
So what’s the FTC to do in this situation? Require the merged company to shed some stores? Closures are already happening anyway and I can’t think of any likely buyers to pick up units that may be put on the block.
Funny that everyone misses the point on this merger. Really nothing to do with competition with Walmart or Costco. I mean really they have been competing with them for 20 or 25 years. What has changed? Nothing. And Amazon, while a challenge, is miniscule compared to them in sales.
So what is the problem? It is that no one buys office supplies anymore. When was the last time you bought a new Rolodex to store your LinkedIn connections? How about a desk caddy to hold pens to write on your tablet? Need a storage box to store those PDFs? The real problem is the high margin supplies are in decline and what is replacing it, low margin technology, is not the office stores’ strength. This merger doesn’t change that at all.
First there were the mom and pop stationary stores. Along came the catalog stationary suppliers and finally the category-killer retailers. The acquisition of Office Depot will eliminate one competitor and the ability to rationalize stores. This will be purely cost savings. Competition is on the internet. To achieve growth will require geographic expansion and e-commerce expansion. The FTC will require some store divestures, but when rationalizing the store locations one or more of the competition stores should be closed anyway. The acquisition will provide a solution to an over-stored situation.
There was a time not so long ago that the public would be crying “anti-trust.” That does not appear to be an issue these days with “everybody” selling “everything.” No one cared when Office Depot acquired Office Max. And fewer will care that Staples acquired Office Depot.
I think that long term the merged company is better off, but the question will become how long can it sustain an edge. They buying and logistics synergy will be huge. They aren’t competing between themselves, it is the online players and Best Buy and Walmart.
It will be interesting where they focus from a SKU selection process as over the last few years they had new focus on areas outside of technology and core supplies, such as janitorial and cleaning supplies for small businesses.
I think the FTC has a different view of the competitive landscape around this time. I just hope the new name isn’t Staples Office Depot Max….
I don’t believe the FTC will disallow this merger—it was simply a matter of time. And, there’s plenty of non-brick-and-mortar competition. That said, if the merged company simply keeps trying to chug along doing the same thing they’ve always done (simply with more real estate), they’ll fail.
It’s time to fully embrace omni-channel retail, accelerate a new business model that relies less on copy paper and printer ink and more on personal connections with the users (anyway and any time they want it!). I’m anxious to see what develops from this merger … and I’m convinced that more of the same will simply produce more of the same.
This is a difficult prognosis, since it will certainly be challenged by the US government on anti-trust basics. Both of these companies are in a poorly focused model that is rapidly going out of business. Mass market, online focused retailers are now the standard, and niche focused retailers are not growing, and most are declining, even rapidly. Names like RadioShack, Best Buy, and others will soon be joining these ranks, since they both embrace this same type of outdated model. The key is adapt or perish….
Thinking of competition along traditional lines (office stores) is way too narrow. You can buy products sold at office stores in many other retail outlets and online. So it is really a question of relevance (or the lack thereof) of office stores.
In this industry landscape, there is FedEx Office, Walmart and Target. None of these three offer the depth of product and services that SPLS and ODP offer. I don’t see how eliminating the competition in this particular instance helps the consumer.
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Reminds me of the Kmart/Sears merger, two wounded retailers trying to hold the other up. The reality is few people are going to either one of those retailers to buy copy paper, ink or business machines. The demographic and demand have fundamentally changed which has nothing to do with Amazon or anti-trust laws.
I can’t see any marketing program that will change the reality of low need for such an over-stored category.
Well, it just means there will be another big hole in strip centers.
I think a few years ago there would have been anti-trust noise made. But now? Everyone sells the same stuff. Nothing really unique. It won’t even be a blip.
Retail 2.0 was about efficiency and differentiation from your retail store competitors.
Retail 3.0 is all about creating a survival strategy to compete in an omni-channel world where there is fierce competition online.
Retail is no longer about “chains” or “classes of trade.” The real monopolies for office supplies will become the online giants like Alibaba, Amazon and maybe Walmart if they can transform to omni-channel.
The real competitors to a merged Staples/Office Depot company are not the current or recent merged office supply companies. Instead Walmart, Amazon and a variety of other focused online office supply companies are the real long-term threats to the recently-merged company.
I believe the FTC will approve this merger with little demand for any divestiture of locations. The FTC mandate is to protect competition, not competitors. With a stronger Staples/Office Depot presence, competition with the above noted brick-and-mortar and online competitors should be enhanced.
While this may be good for the two companies, I don’t see how the consumer benefits at all. Without Staples v. Office Depot competition, they’ll lose out to online businesses. Hard to believe that the FTC won’t see this as anti-competitive.
I’m not certain that we need even ONE office supply chain with physical stores. 2015 is certainly going to be the year that multiple brands drop from view. How long will the new Staples be viable?
The merger is good for shareholders and lousy for consumers. Hopefully the FTC will nix it as being anti-competitive. We have seen over and over again how the lack of competition in any industry does not benefit consumers. The latest glaring example: Fuel prices are down by close to 50 percent, yet airlines have yet to lower their fares. Why? Through mergers and acquisitions many routes are no longer competitive. No competition equals higher fares. The same could be true of office supplies if this proposed merger goes through.
Not a good deal for the consumer. Competition among retailers is what benefits the consumer. This merger benefits the major stock holders and Wall Street. The only other retailers left in the segment are regional and single-store owners. If they even had a chance before, it will be impossible to compete after this merger. The FTC should prevent it.
The office products industry has seen massive changes in the past 20 years. The current state of the business appears to be moving along predictable lines—the only real question was timing.
I suspect the merged company will be much leaner. As currently organized and formatted, the growth years are in the rear view mirror rather than ahead. Nothing short of a major transformation of the business model will bring back the good old days. That said, these are difficult business decisions that impact many lives and I wish them the best.
55 percent to 85 percent of all M&A is a failure. The measure of success of course is to increase shareholder value. At the far end of the failure scale is horizontal M&A that involves mature companies in mature markets facing great outside competition. Sounds like Staples/Office Depot. This type of M&A just rearranges the deck chairs while paying a lot of money to investment bankers, lawyers and accountants. It generally does not create synergies (they will never see $1 billion) and often creates dis-synergies (close an Office Depot store and instead of the customer going to the nearest Staples, they go online and discover Amazon can give them exactly what they need). Integration will be difficult because of the maturity of the cultures of the individual companies.
Of course, someone is going to say that this is great because instead of having one company with X percent SOM and another with Y percent SOM, you are going to have a company with X plus Y percent. That changes absolutely nothing.
From a shareholder’s point of view, this will be a disaster. In five years the market cap of the combined companies will be no greater than the current market cap of Staples.
It’s not totally clear yet if Staples will retain all three “brands,” including Staples, Office Depot, and Office Max, however it seems almost pointless to do so. Most people will be concerned that the absence of competition will drive prices much higher, however, we need to keep in mind that Staples will still be competing with Amazon and other e-commerce retailers.
I find it hard to believe that there is not a profitable space in the market for two big office supply retailers, but the financial aspects of this proposed deal seem compelling for both retailers.
It will be interesting to see if there is a role for Roland Smith post acquisition, or if he will take the money and run. As far as the FTC is concerned, there may be some monopolistic situations to deal with on a market-to-market basis, causing some stores to close and others to be sold off.
Along those lines, as a consumer, I would be concerned that one big player may gradually feel they can “margin up” given the dearth of competition. If that happens, shoppers will reward some of the online and regional alternatives as they emerge.
There can only be one. That being said, can the one truly prosper in the changed office supply market? This is the question that many have pointed out in earlier comments.
I hope so as there are times when going to the store is the only way to make an informed decision. For example it is difficult to make a decision on a new desk, etc., when there are none to test drive in the store.
We have all three of these retailers open close to our offices. While there may not have been a lot of price competition on the same items between the three they did carry enough different items to allow a broad selection of immediately available items.
In the world of category-killer retail, being the last competitor in the race can sometimes lead to a cul de sac, not a superhighway. Ask our friends in the consumer electronics or book businesses.
I cringe every time I read “$X in synergies” in a merger announcement, because what that really means is the amount of capital that will be squeezed out of the deal by the large shareholders.
Here in Tucson, we’ve already seen store closures due to the Depot-Max merger and Staples has just left town, leaving us small business owners and teachers with fewer places to buy supplies, less variety and less price competition.
So what’s the FTC to do in this situation? Require the merged company to shed some stores? Closures are already happening anyway and I can’t think of any likely buyers to pick up units that may be put on the block.
Funny that everyone misses the point on this merger. Really nothing to do with competition with Walmart or Costco. I mean really they have been competing with them for 20 or 25 years. What has changed? Nothing. And Amazon, while a challenge, is miniscule compared to them in sales.
So what is the problem? It is that no one buys office supplies anymore. When was the last time you bought a new Rolodex to store your LinkedIn connections? How about a desk caddy to hold pens to write on your tablet? Need a storage box to store those PDFs? The real problem is the high margin supplies are in decline and what is replacing it, low margin technology, is not the office stores’ strength. This merger doesn’t change that at all.
First there were the mom and pop stationary stores. Along came the catalog stationary suppliers and finally the category-killer retailers. The acquisition of Office Depot will eliminate one competitor and the ability to rationalize stores. This will be purely cost savings. Competition is on the internet. To achieve growth will require geographic expansion and e-commerce expansion. The FTC will require some store divestures, but when rationalizing the store locations one or more of the competition stores should be closed anyway. The acquisition will provide a solution to an over-stored situation.
There was a time not so long ago that the public would be crying “anti-trust.” That does not appear to be an issue these days with “everybody” selling “everything.” No one cared when Office Depot acquired Office Max. And fewer will care that Staples acquired Office Depot.
I think that long term the merged company is better off, but the question will become how long can it sustain an edge. They buying and logistics synergy will be huge. They aren’t competing between themselves, it is the online players and Best Buy and Walmart.
It will be interesting where they focus from a SKU selection process as over the last few years they had new focus on areas outside of technology and core supplies, such as janitorial and cleaning supplies for small businesses.
I think the FTC has a different view of the competitive landscape around this time. I just hope the new name isn’t Staples Office Depot Max….
I don’t believe the FTC will disallow this merger—it was simply a matter of time. And, there’s plenty of non-brick-and-mortar competition. That said, if the merged company simply keeps trying to chug along doing the same thing they’ve always done (simply with more real estate), they’ll fail.
It’s time to fully embrace omni-channel retail, accelerate a new business model that relies less on copy paper and printer ink and more on personal connections with the users (anyway and any time they want it!). I’m anxious to see what develops from this merger … and I’m convinced that more of the same will simply produce more of the same.
This is a difficult prognosis, since it will certainly be challenged by the US government on anti-trust basics. Both of these companies are in a poorly focused model that is rapidly going out of business. Mass market, online focused retailers are now the standard, and niche focused retailers are not growing, and most are declining, even rapidly. Names like RadioShack, Best Buy, and others will soon be joining these ranks, since they both embrace this same type of outdated model. The key is adapt or perish….
Thinking of competition along traditional lines (office stores) is way too narrow. You can buy products sold at office stores in many other retail outlets and online. So it is really a question of relevance (or the lack thereof) of office stores.
In this industry landscape, there is FedEx Office, Walmart and Target. None of these three offer the depth of product and services that SPLS and ODP offer. I don’t see how eliminating the competition in this particular instance helps the consumer.