UPDATE: Office Depot, OfficeMax Said to Merge in $1.19 Billion Deal

--Press release on Office Depot website announces OfficeMax merger

--Announcement accompanied by week-early earnings report

--Release later removed from website

(Updates with details about Office Depot's press release in first four paragraphs.)

 
   By Joan E. Solsman, Melodie Warner and Saabira Chaudhuri 
 

Office Depot Inc. (ODP) said in a press release Wednesday on its website that it had agreed to merge with OfficeMax Inc. (OMX) in an all-stock deal that values the rival office-supplies retailer at roughly $1.19 billion.

However, about an hour later, that press release--which also included Office Depot's earnings, about a week earlier than expected--was removed from the company's website. The release didn't appear anywhere else, such as on those services that distribute press releases to media organizations, and neither company has filed anything yet to the Securities and Exchange Commission.

Office Depot and OfficeMax representatives didn't immediately respond to messages for comment.

The release, dated Wednesday, said Office Depot and OfficeMax reached a definitive agreement on Tuesday to merge. According to the release, Office Depot said it would 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 of $13.

Shares of Office Depot were recently trading 5.6% higher at $5.30 premarket, while OfficeMax shares jumped 4.4% to $13.57. That follows 9.4% and 21% jumps in their shares, respectively, Tuesday.

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

The Wall Street Journal reported earlier this week 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 also has 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 6 cents a share, compared with a year-earlier profit of $20.4 million, or 4 cents a share. Stripping out one-time items, the company reported break-even per-share earnings for the quarter, versus 3 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 4 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 Joan E. Solsman at [e-mail] and Melodie Warner at [e-mail]

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