Staples Agrees to Buy Office Depot for About $6.3 Billion

Subject: Economics

Paper Model: APA

Paper Type: Thesis

Total Words: 912

Document Outline

Shareholder Value 
Competition and Antitrust
Deal Value and Synergies
Antitrust and earlier Mergers
Financing, advisory and Credit Rating
Antitrust approval
Discussion on merger and antitrust
Bibliography


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The article selected from Bloomberg Business is ‘Staples Agrees to Buy Office Depot for about $6.3 Billion’ by Prang & Dudley, 2015; discuss the ‘staples Inc.’ plans to purchase ‘Office Depot Inc.’. The consequences of the deal will reduce the office supply industry, as well as it; will test the regulator role in the case of antitrust.

Shareholder Value

As the result of the deal, each office depot shareholder will receive $7.25 in cash along with shares 0.2188 shares of the staples Inc. The amount of premium attached to the office depot is 44%, on earlier share price of a company reported on 02 February 2015. The merger of the two companies would create a retail chain of value $39 billion in revenues and thousands of the stores nationwide. Investor reaction to the move was positive as the share price office depot soar 22% and staples shares gain 11% on the news of the merger.

Competition and Antitrust

According to the author, it is expected that the merger will draw attention and scrutiny of federal trade commission but the merger is likely to get approval because regulators want to answer increasing online shopping competition. The increasing pressure from the online retailers has changed the competitive environment for companies in terms of pricing and many believe the merger will a game changer. However, shareholders still have reservation in the terms of the deal.

Deal Value and Synergies

According to Brian Yarbrough, a financial analyst, believe that staples have paid extra for the office depot but it was necessary to get the deal through without shareholders resistance. Moreover, analyst believes that move will help the company to answer the rapidly changing competitive business environment in terms of news product offering and increase efficiency of the operations to reduce the cost. In addition, companies’ management believes the merger will deliver the synergies of $1 billion. Nevertheless, the question lies in the merger is whether it can harm consumer choice as previously office depot and office Max were merged in the industry.

Antitrust and earlier Mergers

Antitrust previously approved ‘Office Depot’ and ‘Office Max’ on the ground that the merger is much needed to answer the competition in the market. Therefore, office depot will have to satisfy the antitrust that merger will not reduce the offering for the customers as well as price of the products. Moreover, Barclays plc is serving as financial advisor along with the provision of $ 3 billion credit for the staples. Nevertheless, transaction will increase the size of staples board of directors to 13 with addition of two from office depot.

Financing, advisory and Credit Rating

 The new financing of $ billion dollar has risen concerned among the credit rating agencies (Moody’s, standard and poor and Fitch) and they said staples rating will drop to junk status with this new financing. Company stakeholder (6% in staples and 10% in office depot) which involve Sargent has demanded that they should be part of the merger review in order conduct due diligence and benefit of the deal because company believe that merger could result in additional saving of $2 billion. Staples have refused to go ahead with starboard as it has already financial advisor. Nevertheless, starboard have had previous experience of Office Depot and Office Max and investor believe starboard could replicate the success of previous successful merger. Moreover, in statement published by sergeant said company could have deployed playbook from the earlier merger and consolidation of office depot and Office Max. Nevertheless, company has tried to buy office depot in 1997 but it resulted in failure. The competition commission stated the reason for earlier merger of office Max and office depot.

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