Office Depot, OfficeMax to Merge in $1.19 Billion Deal

Office Depot Inc. (ODP) confirmed it will merge with OfficeMax Inc. (OMX) in an all-stock deal that values the rival office-supplies retailer at roughly $1.19 billion.

Office Depot said it will issue 2.69 new shares--valuing OfficeMax at $13.50 a share based on Tuesday's close--for each OfficeMax share outstanding. The stock-swap value is a 3.8% premium to Tuesday's close.

Shares of Office Depot were recently trading 11% higher at $5.55 premarket, while OfficeMax shares jumped 12% to $14.45.

The combined company's board will include an equal number of directors designated by Office Depot and OfficeMax.

The Wall Street Journal reported Monday that OfficeMax and Office Depot were in advanced talks to merge as the retailers try to fight off tougher competition from rivals like Staples Inc. (SPLS) and Amazon.com Inc. (AMZN).

The deal will combine two companies that have been hammered in recent years by weak economic conditions, falling sales and rising online competition.

Still, the two chains have a substantial retail presence. Office Depot, based in Boca Raton, Fla., has about 1,675 stores world-wide, annual sales of some $11.5 billion and about 39,000 employees. OfficeMax, based in Naperville, Ill., has about 900 stores in the U.S. and Mexico, roughly $7 billion in annual sales and approximately 29,000 employees.

Office Depot has also been under pressure from activist hedge fund Starboard Value LP, which disclosed holding a sizable stake in September and has pushed the company to accelerate cost-cutting and take other steps to improve profitability. In October, Office Depot adopted a shareholder-rights plan, or "poison pill," that is designed to deter hostile takeovers.

Separately Wednesday, Office Depot also reported it swung to a fourth-quarter loss as revenue declined, pushing results below Street estimates.

For the quarter ended Dec. 29, Office Depot reported a loss of $7.3 million, or six cents a share, compared with a year-earlier profit of $20.4 million, or four cents a share. Stripping out one-time items, the company reported breakeven per-share earnings for the quarter, versus three cents a year earlier.

Revenue fell 12%--or 11% in constant currency--to $2.62 billion.

Analysts polled by Thomson Reuters recently expected per-share earnings of four cents on revenue of $2.76 billion.

Gross margin narrowed to 29.9% from 30.3% a year earlier.

Office Depot's plan to revive includes remodeling to reduce average store size, eliminating lower-margin products such as entry-level laptop computers and relying less on sales promotions.

OfficeMax is scheduled to post its quarterly and annual results Thursday.

Write to Melodie Warner at [e-mail]

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