Staples, Office Depot Call Off Merger in Wake of U.S. District Court Ruling

 Staples Store office depot MERGER SIGN BELOW OFFICE BUILDING

Retail office-supply superstores Staples and Office Depot reports that they’ll end their plans to merge following the U.S. District Court for the District of Columbia’s recent ruling granting the U.S. Federal Trade Commission’s request for a preliminary injunction to block the acquisition. Staples had announced plans to acquire Office Depot for $6.3 billion in February 2015.

Under the terms of the merger agreement, Staples will pay Office Depot a $250 million break-up fee. Staples also plans to terminate its agreement to sell more than $550 million in large corporate contract business and related assets to Essendant in connection with the termination of the Office Depot merger agreement.

Staples Chairman and CEO Ron Sargent commented in a prepared statement: “We are extremely disappointed that the FTC’s request for preliminary injunction was granted, despite the fact that it failed to define the relevant market correctly, and fell woefully short of proving its case. We believe that it is in the best interest of our shareholders, customers, and associates to forego appealing this decision, terminate the merger agreement, and move on with our strategic plan to drive shareholder value. We are positioning Staples for the future by reshaping our business, while increasing our focus on mid-market customers in North America and categories beyond office supplies.”

Staples announced the following “strategic plan” that includes:

Target Mid-Market Businesses with Products and Services Including Toner and Ink

Staples says it will continue to target the needs of mid-market business customers with 10 to 200 employees, and will focus on existing customers as well as acquiring new customers. It’s also increasing its offering of products and services beyond office supplies, and plans to pursue market-share gains in core categories such as office supplies, ink, toner, and paper. The company will invest in lower prices and improved supply-chain capabilities, and add more than 1,000 associates to its mid-market sales force.

Staples says it will also simplify the customer experience with its digital selling tools, and will seek to acquire business-to-business service providers and companies specializing in categories beyond office supplies.

Alternatives for European Operations and More Store Closings in North America

Staples plans to “explore strategic alternatives” for its European operations. It says this will allow it to sharpen its focus and more aggressively pursue its mid-market growth strategy in North America, with Staples noting that it’s closed more than 300 of its stores in North America since 2011. The company plans to close at least50 stores in North America in 2016.

Reducing Costs

Staples notes that it generated approximately $750 million of annual pre-tax cost savings from 2013-2015, and that it’s initiating a new multi-year cost-savings plan that it expects to generate approximately $300 million of annual pre-tax cost savings by the end of 2018. The company will primarily focus on reducing product costs, optimizing promotions, increasing the mix of Staples Brand products, and reducing operating expenses.

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