The owner of Office Depot has rebuffed a $2.1bn takeover bid from its larger rival Staples, saying it was open instead to negotiating a more limited deal between the two largest US bricks-and-mortar stationery retailers.
In a letter sent to Staples’ board on Tuesday, ODP’s chairman Joseph Vassalluzzo highlighted the risk that regulators would block the tie-up on antitrust grounds, which could cause “significant damage” to its business.
The rejection comes a week after Staples, controlled by US private equity group Sycamore, offered to pay $40 per share in cash for ODP — a more than 60 per cent premium to ODP’s average closing share price over the 90 days prior to the bid.
Staples’ unsolicited bid is the chain’s third attempt to acquire its smaller rival. A federal judge four years ago blocked what was then a $6.3bn offer for ODP on the basis that it would hurt competition. A merger attempt was also thwarted in 1997, when the two companies planned to create “Staples the Office Depot”.
Pointing to regulators’ previous objections, Mr Vassalluzzo wrote on Tuesday that the latest attempt to combine was likely to involve a “prolonged and expensive regulatory review process with no guarantee of success”.
He put forward alternative proposals for how the two groups could join forces, suggesting that Staples either make an offer to acquire ODP’s retail and consumer-facing ecommerce operations, or set up a joint venture with its retail arm.
“Such a transaction could be executed more efficiently and with far greater certainty and less regulatory risk than your proposal,” he wrote.
Staples is convinced the changing nature of the market will be sufficient to secure regulatory backing and push forward with a deal that will allow it to make sizeable cost savings.
Since the previous merger attempt, both retailers have struggled to compete with Amazon and other ecommerce sites, as well as traditional retailers including Walmart.
However, Mr Vassalluzzo said that if Staples wanted to acquire the whole company, it should bear the regulatory risk. He called for a “hell or high water” clause, under which Staples would agree to pay ODP shareholders regardless of the regulatory outcome.
He also said the cost savings generated by the proposed merger with Staples could be obtained by staying independent.
Staples said last week that it would consider increasing its offer for ODP if the company agreed to sell some of its assets, including CompuCom, a business ODP acquired in late 2017 for $1bn, or its US business-to-business division.
ODP said on Tuesday it was already planning to sell CompuCom. It added that Staples was suggesting the divestiture of its business-to-business unit “to a hypothetical third-party buyer that has yet to be identified, on terms yet to be proposed”.
Shares in ODP were little changed at the open in New York, trading at $46 — above the offer price.
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