Sycamore Plans to Split Staples into Three Separately Financed Entities, Sources Say -- Update

Sycamore Partners intends to split Staples Inc. into three to help fund its $6.9 billion purchase of the office-supply seller, in another sign of the challenges facing the retail industry.

The plan calls for Staples to be divided into three separately financed entities, according to people familiar with the matter: U.S. retail; Canadian retail; and corporate-supply businesses. The three groups will remain under the same corporate umbrella.

The move is designed to make the leveraged buyout of Staples, announced Wednesday, an easier sell to bond and loan investors whose appetite for retail names has soured as the industry's prospects have waned. Their appetite will be crucial to financing the deal, the largest LBO announced this year.

UBS AG, Bank of America Corp. and other Wall Street banks plan to arrange bonds and loans backing only the Staples unit that distributes paper, pens and other supplies to large business and government customers, the people said. The delivery operation is the largest and seen as the crown jewel of Staples.

Sycamore plans to help fund the Canadian retail business with debt from asset manager KKR & Co., the people said. Wells Fargo & Co. will finance the U.S. retail segment with a loan backed by the chain's assets, they said.

Sycamore's approach to breaking up Staples into different businesses and financing them separately is similar to the private-equity firm's deal to buy another beleaguered retailer, Jones Group Inc., in 2014. After Sycamore bought Jones, it split the company into four independent operating entities: Nine West, Jones New York, Kasper Group and a jeans company. It also took two Jones brands -- Stuart Weitzman and Kurt Geiger -- and made them into other independent companies. Sycamore later sold Stuart Weitzman to handbag maker Coach Inc. and Kurt Geiger to private-equity firm Cinven.

Drew FitzGerald contributed to this article

Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

(END) Dow Jones Newswires

June 29, 2017 11:50 ET (15:50 GMT)