Office Depot Inc. Cites Staples Inc. Tie-up for Q1 2016 Financial Decline
On Dec. 7, 2015, the United States Federal Trade Commission (FTC) informed Office Depot and Staples that it intended to block the Staples Acquisition and file a request for a preliminary injunction. On the same date, Office Depot and Staples announced their intent to contest the FTC’s decision to block the transaction. Also on Dec. 7, 2015, the Canadian Competition Bureau filed an application to block the transaction with the Canadian Competition Tribunal. On Feb. 2, 2016, the company and Staples announced that they entered into a letter agreement to waive, until May 16, 2016, certain of their respective rights to terminate the Staples Merger Agreement.
On Feb. 10, 2016, the European Commission approved the transaction subject to certain divestiture requirements.
A hearing on the FTC’s preliminary injunction of the transaction was held in federal district court in March and April 2016. A decision is expected by May 10, 2016.
Office Depot continues to expect total company sales in 2016 to be lower than 2015, primarily due to the impact of store closures, the ongoing business disruption from the protracted regulatory approval process related to the pending acquisition by Staples, and continued challenging market conditions in our industry. The company expects this disruption to continue through at least the first half of 2016, while the company completes the ongoing litigation with the FTC and the additional requirements of the European and Canadian competition authorities.
Office Depot closed nine stores in the first quarter of 2016 as part of its previously announced U.S. retail store optimization plan. The company continues to expect to close more than 50 stores during 2016 for a total of at least 400 closures under this plan.
The company continues to expect incremental integration synergies, restructuring benefits and operating efficiencies to offset the negative flow-through impact of lower sales in 2016. As a result, Office Depot expects to generate approximately $500 million in adjusted operating income in fiscal 2016, with the year-over-year improvement occurring in the second half of the year.
Office Depot continues to expect total annual run-rate merger synergy benefits of more than $750 million from the OfficeMax integration and expects the integration to be substantially complete by the end of 2017.
The company expects to incur approximately $100 million of merger integration expenses over the remaining 2016-2017 period, and estimates it will incur approximately $30 million of expenses in 2016 related to the pending acquisition by Staples.
In 2016, capital expenditures are expected to be approximately $250 million, including investments that support critical priorities and approximately $50 million related to merger integration. Depreciation and amortization is expected to be approximately $225 million in 2016.