Staples and Office Depot to merge

Staples Inc, the leading supplies retailer in the US, has agreed to buy rival Office Depot Inc for $6.3 billion (£4.1 billion), creating a retail chain with about $39 billion in revenue and four thousands stores.

"This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment," said Ron Sargent, chairman and chief executive officer of Staples.

The company said it would pay $7.25 per share in cash and 0.2188 of its shares for each Office Depot share as part of the deal, which is expected to help the new entity better compete against online rivals such as amazon.com.

However, the deal is likely to be scrutinised by antitrust regulators. They rejected Staples' attempt to buy Office Depot in 1997, citing antitrust concerns.

But experts believe this time may be different because of an increase in the number of online retailers offering the same products.

“The competitive environment has changed, but the government will look carefully into the effects on prices,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told Bloomberg. “The merger is a game changer.”

Greater cost savings

The two companies agreed to the merger after pressure from activist investor Starboard Value, saying this would lead to greater cost savings. Staples said it expected to generate at least $1 billion of annualised cost synergies by the third year after the completion of the deal.

The deal is expected to close by the end of 2015. However, Staples said it could call off the deal if authorities ordered divestitures that delivered more than $1.25 billion of Office Depot's 2014 US revenue, Reuters reports. It added it would pay a $250 million termination fee if the deal is scrapped.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.