OfficeMax and Office Depot have suffered declining sales since the recession… (Daniel Acker, Bloomberg )
Office Depot and OfficeMax have agreed to share the supply cabinet.
Office Depot Inc. is buying smaller rival OfficeMax Inc. in what it's calling a "merger of equals," creating a heftier office-supply company to challenge industry leader Staples Inc.
In the $1.2-billion all-stock deal, OfficeMax shareholders will receive 2.69 Office Depot shares for each OfficeMax share, valued at $13.50 each.
Together, the two companies said they expect to better "meet the growing challenges of a rapidly changing industry," anticipating annual revenue of about $18 billion. Staples had $25 billion in sales in 2011.
"Consumers and business-to-business customers are increasingly demanding a seamless omnichannel experience across retail stores, direct sales, telesales and digital environments," the companies said in a statement. "By integrating these touchpoints effectively, the combined company expects to build lasting brand loyalty."
Amazon.com Inc. and other online vendors, as well as mega-chains such as Wal-Mart Stores Inc., Costco Wholesale Corp. and Target Corp., are encroaching on the office-supply market, which research group IBISWorld values at $21.2 billion.
OfficeMax and Office Depot have suffered declining sales since the recession and are struggling to generate a 3% profit margin, compared with a margin of 8% or more at Staples, IBISWorld analyst Dale Schmidt said.
"The hope is that the resultant company could cut redundant costs, raising its profit margin, while retaining a market share that will compete with Staples," Schmidt said. "However, with the ever-increasing popularity of online sales and big-box retailers, the bricks-and-mortar chains of both Staples and the merged company will struggle to grow significantly."
Both companies' boards unanimously approved the arrangement. The board of the fused business will feature equal representation from Office Depot and OfficeMax.
The current chief executives — Neil Austrian of Office Depot and Ravi Saligram of OfficeMax — will keep their jobs until a new head is chosen.
The companies haven't said what the combined operation will be called or where it will be based. Office Depot has its headquarters in Boca Raton, Fla., and OfficeMax is based in Naperville, Ill.
The official announcement of the deal came Wednesday morning, several hours after Office Depot pulled a mistakenly posted version off its website. On Monday, the Wall Street Journal had reported that the two were negotiating a combination.
The stocks of both companies swung higher as the market opened but fell during the day. Office Depot closed at $4.18, down 84 cents, or 17%, and OfficeMax ended the day at $12.09, off 91 cents, or 7%.
Before the market opened, Office Depot reported a fourth-quarter loss of $17.5 million, or 6 cents a share, and OfficeMax posted a fourth-quarter loss of $33.9 million, or 39 cents a share.
Office Depot has 38,000 employees and more than 1,600 stores worldwide. OfficeMax employs 29,000 people and operates about 900 stores in the U.S. and Mexico.