Published November 01, 2013
A deal to combine No. 2 U.S. office supply retailer Office Depot Inc with smaller rival OfficeMax Inc has won approval from the U.S. Federal Trade Commission, the companies said in a joint statement on Friday.
The news, which boosted shares of both companies, came more than eight months after Boca Raton, Florida-based Office Depot proposed to buy Naperville, Illinois-based OfficeMax. They expect the $976 million all-stock deal to cut costs, consolidate stores, boost clout with suppliers and improve chances of fighting market leader Staples Inc and online and discount competitors.
The companies expect the transaction to close on Tuesday.
The deal raised the ghost of a famous antitrust case involving an agreement to merge Staples with Office Depot. The FTC challenged the proposed combination in court in 1997, and it was scrapped after a judge ruled that it would lead to higher prices for shoppers.
But some antitrust experts and many on Wall Street had said the FTC's concerns from 1997 did not apply this time around. The retail landscape has changed markedly in 16 years, they said, especially due to the rise of online sales.
Office supply stores are fighting a battle for relevance, with shoppers increasingly buying their paper, toner and technology online from Amazon.com Inc, drugstores or at mass merchants such as Wal-Mart Stores Inc and Target Corp.
Analysts covering office supply retailers have long called for consolidation in what they see as a cluttered sector whose sales crumbled during the last recession.
On its website, the FTC said the decision to approve the deal was unanimous and that the proposed merger was "unlikely to substantially lessen competition."
The companies said they would each report quarterly earnings after Monday's market close, but they canceled their previously announced conference calls scheduled for Tuesday.
The combined company would have had revenue of about $17 billion for the 12 months ended June 29.
Office Depot and Office Max have not yet disclosed the combined entity's name, headquarters or chief executive officer. On Friday, officials at OfficeMax and Office Depot declined to comment on those details.
"The next major milestone is the appointment of a CEO, which we believe will be announced shortly, providing color into the direction of the merged company," Janney Capital Markets analyst David Strasser said.
OfficeMax shares were up 4 percent at $15.59 in morning New York Stock Exchange trading, while Office Depot rose 3.6 percent to $5.79.