Terms of the deal call for Boca Raton, Fla.-based Office Depot to issue 2.69 shares for each share of OfficeMax, valuing the smaller company at $13.50 per share. The offer is a premium of 3% over OfficeMax's Tuesday close and more than 25% above where OfficeMax traded last week.
Under the terms of the deal, Naperville, Ill.-based OfficeMax will have the ability to pay dividends of up to $131 million, or $1.50 per share, before closing.
The deal was expected -- with reports surfacing about a potential transaction over the weekend -- but not without drama. The companies released and then retracted a draft press release with details of the proposed transaction early Wednesday morning before providing official word of the deal just as markets were opening for trading.
The companies in a statement said the deal would create a $18 billion-revenue office supply giant with better geographic diversity. They also pledged to extract upward of $600 million in cost synergies within three years, and said the combination would have more than $1 billion in cash on its balance sheet and an additional $1 billion more available through revolving credit facilities.
"We are excited to bring together two companies intent on accelerating innovation for our customers and better differentiating us for success in a dynamic and highly competitive global industry," OfficeMax CEO Ravi Saligram said in a statement. "We are confident that there will be exciting new opportunities for employees as part of a truly global business."
The deal is subject to shareholder and regulatory approval. Regulators thwarted a previous attempt at consolidation in the industry, a 1997 bid by Staples to acquire Office Depot, but the companies insist that the competitive landscape has changed in the years since.
"In the past decade, with the growth of the Internet, our industry has changed dramatically," Office Depot chairman and CEO Neil Austrian said in a statement. "We are confident that this merger of equals represents a new beginning for our two companies and will allow us to build a more competitive enterprise for the long term."
Many details of the combination still need to be worked out.
Post-deal, OfficeMax and Office Depot will have equal representation on the combined company's board of directors. But the CEO of the merged entity has not yet been determined, with both Austrian and Saligram along with external candidates to be considered. The new CEO will be charged with determining the combination's naming, branding and headquarters location.
As part of the deal, BC Partners Inc. and affiliates, holders of about 22% of Office Depot, have agreed to vote in favor of the merger and to limit its holding in the combination to 5%. BC Partners will have no board designees or other contractual governance rights related to the combined company.
OfficeMax was advised by JPMorgan Securities LLC, Skadden, Arps, Slate, Meagher & Flom LLP and Dechert LLP.
Peter J. Solomon Co., Morgan Stanley and a Simpson Thacher & Bartlett LLP team led by Mario Ponce advised Office Depot. Perella Weinberg Partners LP and a Kirkland & Ellis LLP team led by Neil Eggleston, Thomas Christopher and Michael Brueck acted as financial and legal advisers, respectively, to the transaction committee of Office Depot's board in connection with the deal.
A Davis Polk & Wardwell LLP team led by Leonard Kreynin and Daniel R. Marx advised JPMorgan Securities.
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The suitor, which already holds a 4.9% stake, calls on shareholders to back its proposals or, possibly, a change in the target′s board. More video