Does a Staples/Office Depot merger now make more sense?

Staples for the third time is seeking to acquire rival Office Depot as the accelerated shift to online shopping and work-from-home culture recasts the opportunity in office supply retail. Does a Staples and Office Depot merger make more sense in a post-COVID environment?

Staples for the third time is seeking to acquire rival Office Depot as the accelerated shift to online shopping and work-from-home culture recasts the opportunity in office supply retail.

Staples, under the corporate name USR Parent Inc., last week made an unsolicited proposal to acquire Office Depot for $40 a share in a deal valued at $2.1 billion. The purchase price presented an 8.2 percent premium above Friday’s close and a 61 percent premium over Office Depot’s average closing price over the previous 90 days.

The deal, however, is well below 2016’s $6.3 billion offer that was called off due to antitrust concerns. The Federal Trade Commission had argued the merger would drive prices higher for big companies that buy office supplies in bulk. In 2017, Staples was taken private by Sycamore Partners.

In its letter to Office Depot’s board, Staples committed to selling Office Depot’s commercial-business unit, which Staples expects would satisfy “any reasonably anticipated regulatory objections.”

Office Depot said it is “carefully reviewing the proposal” with advisers.

Since Staple’s last takeover effort, Amazon.com has cemented its position as the dominant online player in office supplies. In 2018, Amazon Business, its B2B marketplace that supports large companies, hospitals and schools, had sales of $10 billion. In December 2019, RBC Capital predicted Amazon Business’ sales would reach $31 billion by 2023, with the business expanding faster than Amazon’s Retail and AWS segments.

Prior to the pandemic, supporting large and small businesses was the prime growth area for the office supply channel with Staples and Office Depot recently broadening offerings to include software and services.

Office Depot’s revenue has taken a hit this year, however, as heightened demand for work- and learn-from-home products has been unable to offset lost sales from the closure of many corporate offices and restrictions at schools. Sales were down 17 percent in the second quarter and nine percent in the third. Office Depot’s CEO Gerry Smith told analysts on its third-quarter call, “Obviously, COVID is not good for us from a structural perspective.” 

• USR Parent, Inc. Proposes To Acquire ODP – USR Parent
• The ODP Corporation Confirms Receipt of Acquisition Proposal From Staples – Office Depot
• Staples Seeks to Buy Office Depot, Again – The Wall Street Journal
• Staples Seeks $2.1 Billion Deal for Parent of Office Depot – Bloomberg
• Amazon’s rise could help pave the way for Staples-Office Depot merger, finally – The Boston Globe
• Amazon Business grows faster than Amazon itself – Digital Commerce 360
• Amazon Business connects millions of business customers and sellers worldwide – Amazon.com
• RBC Capital says Amazon Business can generate over $30 billion in revenue by 2023 – Invezz
• The ODP Corporation (ODP) CEO Gerry Smith on Q3 2020 Results – Earnings Call Transcript – Seeking Alpha