Office Depot has rejected a proposed acquisition bid from Staples, parent company of Top 40 promo distributorship Staples Promotional Products (asi/120601), but is open to an alternative deal.

In an offer announced Monday, Jan. 11, Staples proposed to acquire 100% of the issued and outstanding common stock of The ODP Corporation (ODP), owner of Office Depot, for $40 per share in cash. If a deal can’t be reached, Staples has said it will commence a public, all-cash tender offer for 100% of ODP’s outstanding shares of common stock in March 2021.

Nonetheless, Office Depot isn’t interested in the deal that Staples has currently proposed. Instead, ODP would favor a joint venture or an acquisition that would see Staples purchase just ODP’s retail and consumer-facing e-commerce operations.

Joseph S. Vassalluzzo, chairman of ODP’s board of directors, outlined this position in a Tuesday, Jan. 19 letter to the private equity firm that owns Staples, New York City-based Sycamore Partners. Vassalluzzo noted that the alternative options present less regulatory risks. Federal authorities nixed two previous acquisition/merger attempts between Staples and Office Depot due to antitrust concerns.

Vassalluzzo’s letter further asserts that limiting any acquisition to the retail and consumer-facing e-commerce operations would make more practical sense, since Staples has made it clear that its “sole interest” is in purchasing those divisions, with the plan being to divest Office Depot’s commercial B2B business unit to a yet-unknown third-party buyer and to sell ODP’s CompuCom IT services unit.

https://t.co/YaAIVpOBVY
Staples, parent company of Top 40 #promoproducts distributor Staples Promotional Products, is attempting to buy Office Depot in a deal valued at $2.1 billion. There are potential anti-trust concerns. @ASI_MBell @asicentral @ASI_AndyCohen @Melissa_ASI

— Chris Ruvo (@ChrisR_ASI) January 12, 2021

“A transaction with you that is limited to our retail and consumer-facing and e-commerce business,” Vassalluzzo said, “would eliminate the time, complexity and uncertainty created in your proposal by the need to identify a suitable third-party buyer willing to acquire the B2B business on terms that would be mutually acceptable to our respective companies. Our proposed alternatives would also create a competitor in a dynamic business environment that would greatly benefit consumers.”

Staples has previously stated that it’s open to negotiate a reasonable merger agreement but has also said it believes its initial offer is a good one. “Staples believes that its all-cash transaction is a compelling value proposition for ODP’s stockholders that offers a high degree of certainty and is superior to the intrinsic, standalone value of ODP,” the company said in a statement.

The Wall Street Journal noted that investors appear to anticipate a deal of some type will come to fruition, as evidenced by the fact that ODP shares soared 24%, to $45.86, between the time Staples revealed its bid and Friday, Jan. 15. On the morning of Wednesday, Jan. 20, shares were trading even higher – over $46.

Given antitrust concerns, Staples noted in its Jan. 11 announcement that the regulatory process for closing the acquisition could take at least six months.

Headquartered in Framingham, MA, Staples was formerly a publicly traded company before Sycamore Partners purchased it in 2017 and took it private.

This is the third time that Staples has tried to acquire Office Depot. The most recent attempt occurred in 2016, but the U.S. Federal Trade Commission blocked that $6.3 billion deal, saying the merger could reduce competition for nationwide contracts for office supplies.

In 1996, Staples and Office Depot agreed to merge, but a government lawsuit nixed the deal. The successful suit contended that the merger would have meant higher prices for pens, paper and other office supplies.

Matthew Eckhouse, vice president/general manager of Staples Promotional Products and a member of the 2020 Power 50, a definitive ranking of the most influential people in promo, has said that he can’t yet comment on what, if any, effects or opportunities an acquisition of Office Depot could have on Staples’ promo division.

With estimated 2019 North American promotional product revenue of $601.6 million, Staples Promotional Products ranked third on Counselor’s most recent list of the largest distributors in the industry.

Headquartered in Boca Raton, FL, ODP’s brands include OfficeMax, CompuCom, Grand & Toy and Office Depot.