NEW YORK -- Office Depot and OfficeMax are being collated.
The retailers said Wednesday they have agreed to combine in an all-stock deal worth about $1.2 billion that would transform the office-supply retail sector, helping the No. 2 and No. 3 chains compete against industry behemoth Staples.
Liang Feng, a Morningstar analyst, said the combination would be positive for the companies. But he said it might not be enough to help the combined company succeed in the changing marketplace. "The industry will face longer term structural headwinds with competitors like Amazon, Costco gaining ground and the decline in demand for secular office products like paper, pens and ink," he said.
In the Pittsburgh area, Office Max's website shows nine stores, with sites in Monroeville, Cranberry, Ross, Bridgeville, Robinson, Pleasant Hills, Frazer, Greensburg and South Strabane. Office Depot lists three locations in West Mifflin, Bethel Park and Munhall.
Office Depot Inc. and OfficeMax, along with Staples Inc., were all founded in the mid- to late 1980s and expanded rapidly in the U.S. throughout the decade.
But the rise in competition from online retailers like Amazon.com and discounters like Costco and Wal-Mart has been tough on the sector, leading to decreased sales.
Over the years, the companies have closed stores, slashed costs and streamlined operations to offset stagnant sales. But the industry was still seen as too bulky, and for years, rumors about possible consolidation have swirled around the sector, which is worth about $21.2 billion, according to research firm IBISWorld Inc. Of that, Staples holds a 35 percent market share, Office Depot has 26.1 and Office Max has 15.6.
Office Depot reported the terms of the deal in a release on its website early Wednesday morning, but then removed it, which caused some confusion. The company then restored the release after the market opened. Office Depot did not respond to requests for an explanation.
Boca Raton, Fla.-based Office Depot and Naperville, Ill.-based OfficeMax said holders of OfficeMax shares will receive 2.69 shares of Office Depot for every OfficeMax share they own. That's equal to about $13.50 per share, based on Office Depot's $5.02 per share closing price Tuesday.
OfficeMax said the move is expected to result in $400 million to $600 million in cost savings by the third year of the deal. The deal is expected to be complete by the end of the calendar year. The combined company's name, marketing brands and corporate headquarters will be determined after the company names a CEO.
The deal still has to go through shareholder and regulatory approvals, and office supply mergers have been questioned by regulators in the past. In 1997, Staples attempted to buy Office Depot but the deal was nixed by the Federal Trade Commission due to concerns the combined company would have too much of a competitive advantage in the marketplace.
Office Depot saw shares fell almost 17 percent to $4.18 in trading Wednesday and OfficeMax shares fell 7 percent to $12.09. Staples shares fell about 7 percent, to $13.60.