Office Depot says no to buyout
Offer of $2.1 billion made by group that controls Staples
Office Depot’s parent company rejected a $2.1 billion buyout offer Tuesday from the investor group that controls rival Staples.
But the Boca Raton company, which has been cutting costs and reshaping its strategy to appeal more to businesses, said it would entertain other possibilities that would avert tough regulatory scrutiny.
A joint venture, or a deal resulting in the sale of Office Depot’s e-commerce and retail businesses, would stand a better chance of passing muster with regulators in Washington, according to a letter sent by ODP Chairman Joseph Vassalluzzo to Stefan Kaluzny, managing director of the investment firm Sycamore Partners, which controls Staples through a subsidiary.
“It would also help maintain competitiveness against nontraditional retailers and optimize ongoing choices for consumers,” he wrote.
“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,” Vassalluzo said.
On Jan. 11, a group led by Sycamore Partners offered to buy ODP Corp. for $2.1 billion, or $40 a share. Staples warned that if Office Depot did not cooperate, it would start to buy out the shares of other stockholders starting in March.
The negative response was a setback to ODP shareholders, who had seen their stock rise to $47.64 since the offer was made more than a week ago. The shares were off by nearly 2% to $44.98 in midday trading on Tuesday.
A previous $6.3 billion bid by Staples in 2016 was rejected by federal authorities on antitrust grounds.
One year later, Staples was taken private by Sycamore, which set up a subsidiary called USR Parent to control the longtime competitor of Office Depot.
In a paragraph containing words that were underlined for emphasis, ODP also challenged Sycamore to specifically lay out how it would deal with the antitrust hurdles that it believes would be inevitably raised again by federal officials who rejected a deal on similar grounds five years ago.
“If Sycamore remains determined to propose a potential acquisition of the entire company, we call on you to expressly address the regulatory uncertainty by committing to bear the risk of potential antitrust obstacles or required remedies through a customary ‘hell or high water’ provision,” the letter said.
In the meantime, ODP said, the company’s “foremost goal remains maximizing value for our shareholders.”
In its own letter sent to ODP on Jan. 11, Sycamore predicted the regulatory process would take at least six months and urged ODP’s board to instruct company management “to cooperate with the regulatory authorities as soon as possible.”
Sycamore said its affiliates own approximately 4.9% of ODP’s common stock, “and we are fully committed to completing the proposed transaction.”
“We are prepared to cooperate with ODP and its Board of Directors to sign a reasonable negotiated merger agreement,” it said. But without the cooperation, Sycamore said it would start making an offer to buy the stock of all other shareholders in March.