NEW YORK — Office Depot and OfficeMax said Wednesday that they have agreed to combine in an allstock deal worth about $1.2 billion that would transform the office-supply retail sector, helping the No. 2 and No. 3 chains compete against industry leader Staples.
The deal still has to go through shareholder and regulatory approvals.
Office Depot Inc. and OfficeMax, along with bigger rival Staples Inc., were all founded in the mid- to late 1980s and helped pioneer a big store retail boom in the 1990s.
But the rise in competition from Internet retailers and discounters such as Amazon.com, Costco and Wal-Mart has been tough on the sector, leading to decreased sales.
Over the years, the companies have closed stores, lowered costs and streamlined operations to offset stagnant sales. For years, rumors about possible consolidation have swirled around the sector, which is worth about $21.2 billion, according to research firm IBISWorld Inc. Of that, Staples holds a 35 percent market share, Office Depot has 26.1 and Office Max has 15.6.
The Wall Street Journal first reported the possibility of a deal between Office Depot and OfficeMax on Monday, sending stock across the sector soaring Tuesday. Office Depot reported the terms of the deal in a release on its website early Wednesday, but then removed it, which caused some confusion.
The company then restored the release after the market opened.
Boca Raton, Fla.-based Office Depot and Naperville, Ill.-based OfficeMax said holders of OfficeMax shares will receive 2.69 shares of Office Depot for every OfficeMax share they own.
That’s equal to about $13.50 per share, based on Office Depot’s $5.02 per share closing price Tuesday, giving the deal a total value of about $1.2 billion.
Office-Max had about 86.7 million shares outstanding as of Oct. 26, according to Securities and Exchange Commission filings. It is a 3.8 percent premium to OfficeMax’s closing price of $13 on Tuesday and a 26 percent premium to OfficeMax’s Friday’s closing price.
OfficeMax said the move is expected to result in $400 million to $600 million in cost savings by the third year of the deal. Both companies will have equal representation on the combined entity’s board. The deal is expected to be complete by the end of the calendar year.
Business, Pages 5 on 02/21/2013