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Retail Industry Updates

Office Depot Rejects Staples’ Takeover, But Leaves the Door Open

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The big news in the retail office supply world is that Office Depot has rejected an acquisition offer by its rival Staples.

Brighton, Mass.-based Staples had offered $2.1 billion to purchase Boca Raton, Fla.-based Office Depot, marking the third time in about 25 years that the companies have tried to merge, including five years ago when a potential deal was nullified by the Federal Trade Commission.

Office Depot said that Staples‘ current proposal didn’t adequately address regulatory risk to its shareholders.

However, Office Depot is leaving the door open to creating “a more compelling path forward to create value for Office Depot and its shareholders.”

In a letter sent by Office Depot Chairman Joseph Vassalluzzo to Stefan Kaluzny, the managing director of the investment firm Sycamore Partners, which controls Staples, Vassalluzzo said Office Depot “is pursuing a comprehensive strategy that we believe can deliver significant value to Office Depot shareholders without introducing material regulatory risk.”

Vassalluzzo said that strategy would build on Office Depot’s B2B strategy and other growth initiatives, which are already creating value for the company’s shareholders.

“In addition, we are open to combining our retail and consumer-facing e-commerce operations with Staples under the right set of circumstances and on mutually acceptable terms,” Vassalluzzo said in the letter. “Indeed, we believe that such a transaction could be executed more efficiently and with far greater certainty and less regulatory risk than your proposal. It would also help maintain competitiveness against nontraditional retailers and optimize ongoing choices for consumers.”

Vassalluzzo said a joint venture would be “a viable path toward maximizing synergies and efficiencies for both companies that we would expect to result from such a transaction, and which would equally share the risks and benefits between our companies.”

He added that another option would be an acquisition by Staples of Office Depot’s retail and e-commerce operations “for a price that enables our shareholders to benefit from such synergies.”

In closing, Vassalluzzo said in the letter: “Office Depot stands ready to discuss a range of transactions that would adequately compensate Office Depot shareholders for retail synergies and protect Office Depot from the financial impact of potential regulatory risks. What we do not plan to do, however, is engage in a transaction that, as history has shown, would likely result in a prolonged and expensive regulatory review process with no guarantee of success, without a commitment that Staples is willing to bear this risk through a customary ‘hell or high water’ provision.”

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