Will the Office Depot-OfficeMax Merger Supply Success?

Source: http://www.flickr.com/photos/theogeo/

Source: http://www.flickr.com/photos/theogeo/

Office Depot and OfficeMax are now officially one company. The merger of the two office-supply chains was completed Tuesday, according to a press release. The new company will operate with the name Office Depot Inc. (NYSE:ODP) and trade on the New York Stock Exchange with the symbol ODP.

The company said the merger will create a “stronger, more competitive and more efficient global provider of office products, services and solutions.” The release says that the companies’ combined revenue is approximately $17 billion for the year ending September 28.

David Strasser, an analyst at Janney Capital Markets, spoke to Reuters about the deal. Strasser said the merger ”is ultimately a better company” because it removes extraneous market capacity and creates a better balance sheet. In the third quarter of 2013, year-over-year sales declined by 3 percent for Office Depot and 4.6 percent for OfficeMax.

Even the combined revenue of the companies still places them behind Staples Inc. (NASDAQ:SPLS), though; in its annual report for 2012, Staples reported $24 billion in revenue. However, in the second quarter, sales decreased 2.2 percent. The decline, the company says, was due to “lower traffic and average order size, and from the closure of 54 stores during the twelve months preceding the second quarter of 2013.”

Staples has not yet released its third-quarter earnings, but declines in the second quarter point to industrywide trends that are not likely to abate for the newly formed Office Depot or any office-supply retailer. Amazon.com Inc. (NASDAQ: AMZN) and other online retailers are seen as a direct threat to the traditional brick-and-mortar stores.

In October, Staples announced that it would begin a price-match guarantee during the holiday season. If customers find a price is lower on Amazon, they can bring it to Staples’s attention, and the price differential will be made up. The press release for the policy specifically mentioned Amazon, but the deal also works for other online retailers.

Battling competition from Staples and the online sector will be an important strategy for the CEO of the new Office Depot. For the time being, that capacity will be filled by Neil Austrian, chairman and CEO of Office Depot, and Ravi Saligram, president and CEO of OfficeMax, who are acting co-CEOs until the search committee finds a replacement. The committee was unable to have a replacement ready by the merger’s completion because of “the uncertainty surrounding the timing and any potential conditions of the Federal Trade Commission approval.”

Office Depot will have a 12-member independent board consisting of Austrian and Saligram, as well as five members from each company’s previous board. Five of Office Depot’s board members and two of OfficeMax’s chose not to seek appointment to the new board.

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