By Nadia Damouni and Dhanya Skariachan
NEW YORK, Feb 18 (Reuters) - Office Depot Inc, the
No.2 U.S. office supply retailer, is in advanced talks to
merge with smaller rival OfficeMax Inc and a deal could
come as early as this week, a person familiar with the matter
said on Monday.
Both companies, which trail industry leader Staples Inc, are under much pressure from investors to boost
profitability as well as shareholder value, and a merger would
help them to cut costs, close stores and boost their clout with
suppliers.
The deal is expected to be structured as a stock-for-stock
transaction, the person said, but the source also warned that
the talks could still fall apart.
Office Depot has a market capitalization of $1.1 billion
while OfficeMax has a market value of $932 million.
Analysts have long called for consolidation in what they see
as a cluttered sector, in which sales crumbled during the global
financial crisis. Office supply stores are also fighting a
battle for relevance, with shoppers increasingly buying their
paper, toner and technology online or at mass merchants.
Office Depot declined to comment on the news of a potential
deal. Representatives for OfficeMax were not immediately
available for comment. The news was first reported by the Wall
Street Journal.
Neuberger Berman LLC, one of OfficeMax's top investors and
which has pressured the company to do more for shareholders,
said it would support a merger with Office Depot Inc
depending on deal terms.
Benjamin Nahum, a portfolio manager at the investment firm,
told Reuters in an interview on Monday that his preference would
be for OfficeMax to declare a special dividend before merging
with Office Depot.
"In our view this would facilitate a fair deal," Nahum said,
adding that OfficeMax shareholders should be compensated for
"the balance-sheet strength that we bring to this combined
entity".
Neuberger Berman had called on the company last June to
return money to shareholders in the form of a dividend or share
repurchases and raised the specter of a proxy fight.
According to Thomson Reuters data, Neuberger Berman owns
4.76 percent of OfficeMax, making it the third-largest
shareholder of the Naperville, Illinois company.
Office Depot has also come under pressure, with activist
hedge fund Starboard Value LP urging it last September to make
some drastic cost cuts and take other steps to improve
performance.
In 2011, Office Depot CEO Neil Austrian told Reuters that
while the office supply retail sector was ripe for
consolidation, antitrust regulators were sticking to an
antiquated view of the sector and not letting key players merge.
The Federal Trade Commission rejected a $4 billion merger of
Office Depot and Staples in 1997, saying it would lead to less
competition and higher prices for customers.
Analysts now play down those concerns as mass merchants such
as Target Corp and online chain Amazon.com
become bigger players in the sector.
On Friday, shares of OfficeMax closed down 1.29 percent to
$10.75 while Office Depot was up 2 percent to $4.59. U.S.
financial markets were closed on Monday for a national holiday.
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