Office Depot Rejects Staples Acquisition Offer, Proposes Merger of Retail Operations Only

ODP, parent company of Office Depot, has rejected Staples’ most recent acquisition proposal, coming back with a counter-offer to merge the two companies’ direct-to-consumer retail operations without including Office Depot's business-to-business operations.

Staples first tried to acquire Office Depot in 2015. Even though both parties agreed to terms, the Federal Trade Commission blocked the deal on the grounds of violating anti-trust rules.

In the time since, Amazon launched its B2B office supply business and, as it tends to do, disrupted the entire industry. With Amazon acting now as a major adversary for both big-name companies like Staples and smaller businesses (promotional products companies included), a Staples-Office Depot merger is now much more feasible.

Staples argued that the current business climate, in which Amazon is a major player, created adequate competition even if it boosted itself with Office Depot’s assets.

The main complaints still came from small businesses, who argued that it could drastically impact their standing in the industry.

This development, however, is a bit of good news for those smaller businesses, especially those that focus on B2B office supplies and services.

In a letter to Stefan Kaluzny, managing director of Sycamore Partners, Staples' parent company, ODP chairman Joseph Vassaluzzo addressed “regulatory uncertainties” and financial risks in Sycamore’s original offer:

A transaction with you that is limited to our retail and consumer-facing and e-commerce business would eliminate the time, complexity and uncertainty created in your proposal by the need to identify a suitable third-party buyer willing to acquire the B2B Business on terms that would be mutually acceptable to our respective companies. Our proposed alternatives would also create a competitor in a dynamic business environment that would greatly benefit consumers.

As part of its offer last week, Staples said it would seek out a third-party buyer for Office Depot's B2B operations, a move aimed at easing the regulatory process. ODP's counter-offer simply removes Office Depot's B2B unit from the deal altogether, removing the need for Staples to divest after a deal goes through.

ODP's counter-proposal would also not include CompuCom, Office Depot's IT services business, in the sale. ODP said it had already initiated the process for the sale of CompuCom after a strategic review in November.

Vassaluzzo said that a retail-only transaction would have a “significantly lower” regulatory risk, and that including Office Depot's B2B unit within the transaction could set up an even longer regulatory review process with the authorities, something ODP does not want to engage in after the lengthy battle that started in 2015.

A retail-only Staples and Office Depot merger would create a stronger competitor that might be able to stand up to Amazon in the direct-to-consumer market without posing much of a threat to smaller, more traditional B2B office supply sellers, including within the promotional products industry.