9:40 a.m. | Updated
Office Depot and OfficeMax announced their plans to merge on Wednesday, just hours after an erroneous release about the deal briefly surfaced.
Under the terms of the deal, Office Depot said it would issue 2.69 new shares of common stock for each share of OfficeMax. At that level, the transaction would value OfficeMax at $13.50, or roughly $1.19 billion, a premium of more than 25 percent to the company’s closing price last week.
The deal has been anticipated, as the companies face an increasingly difficult competitive environment. Both companies, which are burdened with big real estate footprints, have struggled against lower-priced rivals like Amazon.com and Costco. By uniting, the two companies should be able to cut costs and better negotiate prices.
“In the past decade, with the growth of the internet, our industry has changed dramatically,” Neil Austrian, chairman and chief executive officer of Office Depot, said in a statement. “Combining our two companies will enhance our ability to serve customers around the world, offer new opportunities for our employees, make us a more attractive partner to our vendors, and increase stockholder value.”
While the deal has been years in the making, it was initially announced prematurely. A news release announcing the merger of the two office supply retailers was posted early Wednesday morning on Office Depot’s Web site, but it quickly disappeared.
Several news organizations reported the terms disclosed in the errant news release for Office Depot’s earnings. The details were buried on page four of the release under the header “Other Matters.”
As the details filtered through the market, shares of the companies jumped. In premarket trading, Office Depot’s stock rose more than 7 percent, while OfficeMax shares were up more than 8 percent.
The episode is reminiscent of other times that companies’ earnings releases were published prematurely. Last fall, Google’s third-quarter earnings were published three hours early, which the technology giant blamed on a mistake by R.R. Donnelley & Sons, the company’s printer.
Representatives for Office Depot and OfficeMax were not immediately available for comment on the erroneous release.
Strategically, the deal makes sense, as the companies deal with a changing competitive environment.
Combined, the companies reported about $4.4 billion in revenue for their third quarter of 2012; in comparison, Staples disclosed $6.4 billion in revenue for the same period.
Office Depot has also been under pressure from an activist hedge fund, Starboard Value, which sent a letter to the retailer’s board last fall. In it, Starboard called for more cost cuts and a greater focus on higher-margin businesses like copy and print services. With a 14.8 percent stake, Starboard is the company’s biggest investor.
DealBook: Office Depot and OfficeMax Announce Plans to Merge, After Erroneous Release
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DealBook: Office Depot and OfficeMax Announce Plans to Merge, After Erroneous Release
