Amid Merger Reports Shares Soar for OfficeMax & Office Depot

Story first appeared on the Chicago Tribune -

Shares in Naperville-based OfficeMax Inc. soared 20 percent Tuesday on a report it is in advanced merger talks with Office Depot Inc.

And Office Depot shares were up 9 percent after the Wall Street Journal reported the two companies were in advanced discussions, citing person familiar with the negotiations, with a deal possible as early as this week.

Currently, the deal is expected to be structured as a stock-for-stock transaction, the person said.

Neither company responded to requests seeking comment.

One of OfficeMax's top shareholders, Neuberger Berman, said it would support a merger with Office Depot depending on terms of the deal, according to a portfolio manager at the firm.

Responding to media reports, Benjamin Nahum of Neuberger Berman, told Reuters in an interview that his preference would be for OfficeMax to declare a special dividend before merging with Office Depot. "In our view this would facilitate a fair deal."

Neuberger Berman said OfficeMax shareholders should be compensated for "the balance sheet strength that we bring to this combined entity."

The news came months after the investment firm called on the third-largest U.S. office supply chain to return money to shareholders in the form of a dividend or share repurchases and raised the specter of a proxy fight next year if the retailer fails to comply.

According to Thomson Reuters' data, Neuberger Berman owns 4.76 percent of OfficeMax, making it the third-largest shareholder of the Naperville company.

OfficeMax is expected to report its quarterly earnings on Thursday.

While the pair up had been rumored for years, one analyst said Monday that he believed a deal was less likely after a report last week that Office Depot is in talks to sell its remaining 50 percent stake in its Mexican operations.

Scott Tilghman, an analyst with investment firm B. Riley & Co. said that similarities in the pair’s U.S. and Mexican operations were thought to be a cornerstone of the consideration to combine.

But even if Office Depot does sell its Mexican stake, Tilghman said a deal would still make sense as both companies struggle to gain traction against competitor Staples Inc. and sites like Amazon.com.

By combining, the pair could cut costs by shedding stores and streamlining operations without having to raise prices. Tilghman estimates the companies could get rid of 20 percent of their combined stores and still hold onto customers.

Both companies have struggled in recent years from declining revenue in their retail stores. In OfficeMax’s most recent quarter, it was able to grow net income by cutting costs despite lower revenue. Slumping retail sales were somewhat offset by OfficeMax’s U.S. contract business, where it works directly with businesses to help operate more efficiently and reduce office expenses.

If combined, OfficeMax and Office Depot, the world’s second and third largest office products companies by revenue, would still not eclipse the segment’s largest business, Staples Inc.

Office Depot, based in Boca Raton, Florida, has 1,675 stores world-wide, annual sales of about $11.5 billion and some 39,000 employees, the Journal said. OfficeMax, operates roughly 900 stores in the United States and Mexico, generates about $7 billion in annual sales and has 29,000 employees, the Journal said.

Shares of OfficeMax closed at $13, up $2.25 Tuesday on the New York Stock Exchange. Shares of Office Depot rose 42 cents to close at $5.02.

Retailers Try Sweetening the Deal to Open Purse Strings

Associated Press

Tired of waiting for spending to rebound on its own, retailers are taking matters into their own hands. Stores like Sam's Club, Target, Toys "R" Us, Staples and Office Depot are offering unconventional promotions meant not only to attract visitors to stores, but also to get them feeling profligate.

Sam's Club is introducing a program in which it facilitates loans for shoppers of up to $25,000, backed by the Small Business Administration. Target will give its credit card holders 5 percent discounts. Toys "R" Us offers a holiday fund program in which it adds to shoppers' savings, and Staples and Office Depot are giving away office products for a penny or at no cost.

"A lot of the government programs have come to an end," said David Bassuk, a managing director in the global retail practice at AlixPartners, a financial consultancy. "So retailers are taking it upon themselves to do everything they can to get the consumer to spend, even opening up their own wallets to give money back to the consumer."

Of the over-the-counter stimulus plans, the one at Sam's Club is the most unusual.

Sam's Club began testing the program in May and will soon start marketing SBA loans of $5,000 to $25,000 for its members nationwide. Superior Financial Group, which is managing the loans, gives Sam's Club members a $100 discount on the application fee and lower interest rates because of how much business it expects to get through the arrangement.

The company says it does not expect the program to be a big moneymaker, though it earns $50 for each financed loan. The point is to get customers spending more freely -- and, it hopes, spending at Sam's Club.

Michael Golata was someone who had been watching his spending carefully. As a contractor in Louisville, Ky., for United Parcel Service, he drives emergency medical equipment to hospitals when MRI or CT scan machines break down.

When he asked UPS if more routes were available, the company told him there was so much work that he should bring on as many drivers as he could afford. There was just one problem: Golata owned one truck, and he was driving it all the time. Online, he had found a used white Dodge Sprinter for $12,500. With just a few thousand dollars in cash, he tried to get a bank loan but was denied. Golata, a Sam's Club member, clicked through the retailer's website and found a page describing SBA loans offered by the retailer. He filled out an online application, and, by the next day, got a phone call from Superior Financial telling him he was approved for a $10,000 loan, with an interest rate of 7.25 percent over 10 years.

Other retailers are taking slightly different routes to economic recovery. Beginning in the fall, Target will offer holders of its Target-branded credit and debit cards 5 percent off every purchase.

Toys "R" Us is asking consumers to create a sort of grown-up piggy bank, and put money into a holiday fund that can be spent only at the toy store. Toys "R" Us will add 3 percent to the account's balance in mid-October.

Office Depot is practically giving away products. Trying to lure back-to-school shoppers, it will soon sell some supplies, like glue sticks and scissors, for less than $1.

Staples is offering several products for a nickel or a penny.

Staples In Violation Of Overtime Laws
Story from Business Management Daily

A federal jury in Newark has awarded $2.5 million in damages to 343 sales managers employed by office superstore Staples.

The court determined the retailer misclassified the managers as exempt from the Fair Labor Standards Act (FLSA) when they were not. As a result, the managers were not paid overtime.

Staples maintained it carefully examined the situation with its overtime lawyer to comply with the FLSA, but the jury disagreed. It ruled Staples willfully violated the overtime labor law.

The court has not yet decided whether it will exercise its option to double the damages, as it can in cases involving willful violation of the law.