THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, September 5, 1996 TAG: 9609050337
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: STAFF AND WIRE REPORT
DATELINE: BOSTON LENGTH: 65 lines
Staples Inc. announced Wednesday that it would buy rival Office Depot for $3.35 billion worth of stock, merging the nation's two largest chains of office supply stores.
The deal would create a company with nearly 1,100 stores and $10 billion a year in revenues. The companies plan to close some stores, but open more new outlets, and no layoffs are planned.
The merger will reshape the 10-year-old ``office superstore'' business the two companies helped create. The large retail stores have been credited with cutting prices for small buyers.
Together, Staples and Office Depot control about 10 percent of the U.S. retail office supply business, triple the share of OfficeMax Inc., their nearest competitor. The new company will rename its stores as Staples The Office Depot.
``These are two of the fastest-growing companies in business history,'' said Thomas Stemberg, who will be chief executive of the new company. ``Our objective here is to capitalize on the best of both.''
Office Depot recently expanded into the Hampton Roads market, opening a store in Norfolk's Military Crossing shopping center and another in Hampton. It also was looking at three other sites across the region.
In the spring, Staples expressed interest in opening local outlets, but it didn't move forward.
Stemberg said the company would be able to negotiate better deals with suppliers and cut overhead by combining some operations and facilities to save a total of $447 million in the first three years of the merger.
One of the deal's selling points is that the companies, while they overlap in some markets, have concentrated mostly in different areas of the country.
``The fit between these two companies is real. They're not just saying that,'' said Ursula Moran, an analyst with Sanford C. Bernstein in New York.
Staples is strongest in the Northeast and California, while Office Depot has most of its stores in the Midwest, Florida and Texas.
Analysts said the new company will need to address Office Depot's heavy reliance on computer sales, which have slowed recently.
``Staples has taken on a troubled sister, so to speak,'' said L. Keith Mullins, an analyst at Smith Barney. Office Depot's stock has been trading well below the $25 it reached earlier this spring.
In mid-July, Office Depot's stock dropped sharply when it reported virtually flat second-quarter profits on a 15 percent sales increase.
Stemberg, the current chairman and chief executive of Staples, clearly will be running the new company.
Office Depot head David Fuentes will be chairman. Martin Hanaka, now Staples' chief operating officer and president, will keep his title. John Mahoney, who recently came to Staples from Ernst & Young, will be the new company's chief financial officer.
Eight Staples representatives and six Office Depot directors will sit on the new company's board, and its headquarters will be in Massachusetts, where Staples is based.
Staples' stock fell Wednesday, pushing down the value of the deal from $3.49 billion to $3.35 billion. Staples fell 75 cents per share to $18.75 on the Nasdaq Stock Market. Office Depot rose $4.50 to $20.37 1/2 on the New York Stock Exchange. ILLUSTRATION: Color photo
STAPLES, with 517 stores, had expressed interest in entering the
Hampton Roads market this spring.
OFFICE DEPOT, with 532 stores, recently opened a store in Norfolk's
Military Crossing shopping center and another in Hampton. by CNB