Office Depot CEO: 'Bold new action' needed after failed merger

Dive Brief:

Office Depot Monday discussed the fallout from its failed merger attempt with rival office-supplies retailer Staples, saying that it has extended a $1.2 billion asset-based credit facility for an additional five years to mature in 2021. The company also said it has hired consultancy Bain & Co. for a strategic review.
In a conference call the retailer also said it’s considering selling some of its European operations, increasing markets like break room and cleaning supplies, and possibly making its own acquisitions, as CEO Roland Smith said that the company’s future will depend on “bold new action.”
Staples and Office Depot terminated their merger agreement six days after a federal judge granted the Federal Trade Commission’s request for an injunction against the $6.3 billion merger over antitrust concerns. Staples is paying Office Depot a $250 million breakup fee May 19, as stipulated in their agreement.

Dive Insight:

More than a year after Staples and Office Depot announced their merger agreement, the two retailers are now figuring out how each will go it alone.

The merger of the two companies would have created an international office supply Goliath that would have relied on its impressive brick-and-mortar presence to neutralize the growing threat posed by online competition. That was a bit too much for the FTC, and ultimately for U.S. District Court Judge Emmet Sullivan in the District of Columbia.

Recent earnings reports suggest that both Staples and Office Depot now face grim futures. Speaking on a March conference call after Staples reported underwhelming Q4 2015 results and revealed plans to close 50 stores this year, Staples CEO Sargent said the FTC took “an incredibly narrow” definition of Staples’ office supply business. He added that the company had been mulling contingency plans for several months in case the Office Depot deal was blocked.

Similarly, Office Depot CEO Smith last month blamed the protracted legal wrangling for the retailer’s disappointing Q1 results.

But now it’s time to move on, and Smith noted that the company’s own acquisition of OfficeMax, which did manage to pass muster with the FTC in 2013, has provided it with some advantages as it considers its next moves. The company has yet to fully intigrate OfficeMax, and says it plans to do so by the end of 2017.

“The continued realization of synergies from the merger with OfficeMax has provided the company with a significantly improved financial profile including a strong liquidity position and the ability to generate future cash flow as merger related expenditures abate over time,” Smith said in a statement Monday. “The extension of our credit facility provides us with substantial flexibility as we look to enhance shareholder value going forward.”