Office supply retailer Staples has announced that it is buying rival chain Office Depot in a deal worth $6.3 billion. Staples will be paying Office Depot's shareholders with a mixture of cash and stock for a value of $11 per share. The deal is expected to close by the end of this calendar year, with Staples expecting to generate more than $1 billion in "annualized cost synergies" by the third full fiscal year. This will cost the company approximately $1 billion to organize, with the savings stemming mostly from store closures and layoffs.
Staples aims to "aggressively reduce global expenses."
"This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment," said Ron Sargent, Staples’ chairman and CEO. "We expect to recognize at least $1 billion of synergies as we aggressively reduce global expenses and optimize our retail footprint. These savings will dramatically accelerate our strategic reinvention which is focused on driving growth in our delivery businesses and in categories beyond office supplies."
The deal will further consolidate the American market for office supplies, which is currently under threat from both online retailers like Amazon and large chains like Walmart. Two years ago Office Depot itself merged with OfficeMax, then the smallest of the three major retailers in the market, and this new acquisition means that Staples is essentially the last chain standing. The combined market value of the companies will be around $15 billion ($11 billion from Staples, $4 billion from Office Depot), with combined annual sales of more than $35 billion generated by over 4,000 stores. While Staples is arguing that there's more competition in the marketplace than ever before, antitrust regulators might still disagree. For individual customers there's more choice online, but large corporate clients might not like the lack of options when it comes to kitting out a new office.