Staples’ years-long pursuit of Office Depot may be inching closer to becoming a reality.
ODP Corp., parent of Office Depot, said its board has approved a plan to split the company into two publicly traded companies. ODP said the split would allow the two companies to focus on their respective areas of expertise while also unlocking shareholder value.
Under the plan, ODP will retain its retail consumer and small-business products and services division, which includes some 1,100 Office Depot and OfficeMax stores and e-commerce site.
ODP’s Business Solutions Division contract business and independent regional office-supply distribution operations will be spun off as a new and separate company. (The business solution unit accounted for about half of the company’s fiscal 2020 sales. The new entity will also own ODP’s newly formed business-to-business digital platform technology business, as well as the company’s global sourcing office and its other sourcing, supply chain and logistics assets.
The transaction, expected to be completed in the first half of 2022, will occur through a distribution of shares of the new company as a tax-free dividend to ODP’s shareholders.
“We believe creating two focused, pure-play companies will unlock significant opportunities by improving our ability to meet the needs of our customers, while better matching assets and investment profiles of both companies to generate greater value for our shareholders,” said Gerry Smith, CEO, ODP Corp. “Maximizing the strategic focus and financial flexibility of each entity and aligning their go-to-market strategies and capital investments will enable us to meet customer demand.”
The move comes as Staples has continued to pursue its acquisition of Office Depot. In January, ODP turned down an offer by Staples to buy the company for $2.1 billion in cash, saying it was unlikely to overcome regulatory challenges. But in a letter detailing its response and rejection of the offer, ODP also said it was open to a reworking of the deal, including combining their retail operations.
“We are open to combining our retail and consumer-facing e-commerce operations with Staples under the right set of circumstances and on mutually acceptable terms," ODP chairman Joseph S. Vassalluzzo wrote in the letter. "We believe the regulatory risk of pursuing a retail-only transaction to be significantly lower than your proposed transaction.”
The January offer was Staples’ third attempt to buy its rival. In 2016, Staples and Office Depot called off their merger after a federal judge issued an injunction temporarily blocking the $6.3 billion deal over antitrust concerns. Staples previously tried to acquire Office Depot in 1996. But the deal was called off after regulators raised antitrust concerns.
News of the split came the same day as ODP reported that its first-quarter revenue fell 13% to $2.4 billion.Theretail division sales fell 10% over last year to $1.0 billion, while sales in the Business Solutions Division fell 16% to $1.1 billion. Sales at CompuCom (which is in the process of being sold) were down 17% to $196 million.
ODP said more details of the separation would be announced in the coming months, including the board and management leadership of both companies. It is anticipated that both companies will be capitalized to provide the financial flexibility to take advantage of future strategic opportunities, the company stated.
“We are fortunate to be undertaking this process from a position of financial, operational, and organizational readiness, with significant liquidity, providing us flexibility in determining how to allocate capital between the separated entities,” said Smith.