Office Depot Split Paves Way For Staples To Pursue Acquisition

The official plan to separate Office Depot into two companies based on its retail and B2B divisions, and excluding CompuCom which ODP was already planning to sell, could open the door for further talks on a sale to Staples which previously said it would like to acquire Office Depot, but is not interested in the B2B component.

Office Depot parent company ODP on Wednesday said the company will separate into two independent companies, a move which opens the door to further moves by rival Staples to acquire the company.

The ODP split will result in two publicly traded companies that will still share commercial agreements that will let them continue leveraging scale in such areas as product sourcing and supply chains, the company said.

Office Depot shares rose by nearly 10 percent on the news, trading at $46.68 on Wednesday as of 2:15 p.m. ET.

The first organization, which will retain the ODP name, will focus on the Boca Raton, Fla.-based company’s retail consumer and small business services that are sold through ecommerce and about 1,100 retail Office Depot and OfficeMax location.

[Related: 5 Things To Know About Staples’ Bid To Acquire Rival Office Depot]

The second, temporarily known as “NewCo,” will be based on ODP’s B2B business, which includes the ODP Business Solutions Division, Canada-based Grand & Toy, and ODP’s regional office supply distribution business, along with ODP’s new B2B digital platform technology business.

The separation is expected to be complete in the first half of 2022.

Not included in the Office Depot split is the CompuCom systems integration and managed service business. ODP in January said it plans to sell CompuCom, which it acquired in 2017 for about $1 billion.

Framingham, Mass.-based Staples, known by its corporate name as USR Parent, in January made an attempt to acquire Office Depot in a deal worth $2.1 billion, which was a 61-percent premium over Office Depot’s average closing share price over the 90 trading days preceding the offer. ODP did not outright reject the acquisition bid.

However, Staples in its offer proposed that Office Depot divest itself of one or both of its business-to-business units as a way to increase the value of Office Depot.

“We may increase our proposed valuation (i) for logical strategic divestitures that ODP may execute to unlock value, such as the sale of its CompuCom business and/or (ii) if ODP conducts a comprehensive sale process for its U.S. commercial business unit (the ‘B2B Business),” Staples wrote in an open letter at the time.

2021 so far has proven to be a tough year for ODP.

The company on Wednesday reported first fiscal quarter 2021 revenue of $2.4 billion, down 13 percent year-over-year, although GAAP net income for the quarter rose to $53 million vs. last year’s $45 million, and non-GAAP net income rose by $2 million to $68 million.

The ODP retail division sales in the first fiscal quarter fell 10 percent over last year to $1.0 billion, Business Solutions Division sales fell 16 percent to $1.1 billion, and CompuCom sales fell 17 percent to $196 million. Operating income was $100 million for the retail division, up 15 percent over last year, and $17 million for the Business Solutions Division, down 58 percent from last year. CompuCom had an operating loss of $1.0 million

An ODP spokesperson told CRN via email that the company is not providing further information on the Office Depot split other than what was given in a company press release.

However, ODP CEO Gerry Smith, in a prepared statement wrote that the company believes that creating two focused, pure-play companies will improve its ability to meet customer needs while better matching assets and investment profiles of both companies to generate greater shareholder value.

“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,” Smith said. “In addition, positioning their respective growth trajectories and shareholder specific return profiles will achieve appropriate market valuations. The separation will also provide exciting opportunities for our employees, whose dedication and talent will enable both companies to realize their full potential.”