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Office Depot to Buy OfficeMax for $1.17 Billion in Stock

Saturday 23 February 2013

Office Depot Inc. have agreed to buy OfficeMax Inc. for $1.17 billion Wednesday. The combined company will generate revenue of almost $18 billion compared with $25 billion in sales last year for Staples.
Office Depot, based in Boca Raton, Florida, saw their shares fall 17 percent to $4.18 at the close in New York. It surged 9.4 percent yesterday. Naperville, Illinois-based OfficeMax dropped 7 percent to $12.09 after a 21 percent rise yesterday.
Both companies have been gaining this year on speculation about a possible merger and the actual terms didn't meet expectations, said Ian Gordon, analyst for Standard & Poor's in New York. Office Depot gained 40 percent this year through Feb. 15 while OfficeMax advanced 10 percent.
The new company's board will include an equal number of directors designated by Office Depot and OfficeMax, the companies said. The board will conduct a search for a chief executive officer. Both incumbent CEOs, Neil Austrian at Office Depot and OfficeMax's Ravi Saligram, will be considered.
Under the terms of the deal, OfficeMax will have the right to pay a cash dividend of as much as $1.50 a share before the transaction is completed, the companies said.
The merger may generate as much as $600 million in annual cost savings in three years, the companies said. The new company also would have more than $1 billion in cash on hand and another $1 billion available in a revolving credit line. The deal is expected to close by the end of the year.
The combined OfficeMax and Office Depot may close or sell as many as 600 locations, giving Staples an opportunity to increase sales in those areas, Gary Balter, an analyst for Credit Suisse Group AG in New York, wrote in a note to clients. Staples had 2,295 stores worldwide as of Jan. 28, 2012. In statements earlier this month, Office Depot said it had about 1,675 global locations and OfficeMax said it had about 900 stores in the U.S. and Mexico.
Office Depot in a separate statement Wednesday reported a fourth-quarter net loss of $17.5 million compared with net income of $12.3 million a year earlier. Analysts on average had projected a net profit of $13.7 million. Sales fell 12 percent to $2.62 billion.

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