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Office Depot and OfficeMax fix fumble with $1.19 bln formal merger announcement

Last updated: 10:38 20 Feb 2013 EST, First published: 11:38 20 Feb 2013 EST

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Office Depot (NYSE:ODP) and OfficeMax (NYSE:OMX) managed Wednesday to rectify their fumble as they announced a formal all-stock merger deal. 

The formal announcement came just after Office Depot prematurely released news of the deal, buried on page four of its fourth quarter earnings release. 

Under the terms, Office Depot will pay 2.69 shares, or $13.50 based on the stock's closing price Tuesday, for each OfficeMax share, valuing the deal at $1.19 billion based on 87.9 million OfficeMax shares outstanding. 

The deal, which has been unanimously approved by both board, will create a company that will benefit from expanded offerings across multiple distribution channels and geographies.

The parties said the new entity would have had pro forma combined revenue of around $18 billion last year, which compares to Staples (NASDAQ:SPLS) sales of about $25 billion. 

Shares of Office Depot declined almost 9% this morning to $4.57, while shares of OfficeMax were up 0.6% to $13.07 after rallying 21% the previous session as talks of the deal broke out from a report in the Wall Street Journal. 

Staples was down 4.2% to $14.03 after climbing 13% on Tuesday. 

“In the past decade, with the growth of the internet, our industry has changed dramatically. Combining our two companies will enhance our ability to serve customers around the world, offer new opportunities for our employees, make us a more attractive partner to our vendors, and increase stockholder value,” said chairman and CEO of Office Depot, Neil Austrian. 

Office Depot also reported Wednesday that its fourth-quarter sales declined 12% to $2.6 billion, and posted an adjusted profit of $1 million, or zero cents a share, down from an adjusted profit of $8 million, or 3 cents, a year earlier. 

OfficeMax, meanwhile, swung to a fourth-quarter operating loss of $50.1 million, versus an operating profit of $12.6 million a year earlier. Its sales fell to $1.7 billion from $1.84 billion as comparable-store sales dropped 4.1%.

The companies said that each party will have equal representation and governance rights with the new board structure. The parties have also agreed to form a selection committee made up of an equal number of independent board members from each company that will oversee the search process for the CEO of the new entity. 

Both current CEOs of Office Depot and OfficeMax will be considered, they said. 

The office supplies companies noted that the merger is expected to deliver between $400 to $600 million in annual cost synergies by the third year following the deal's close. 

The transaction is expected to close by the end of 2013, subject to stockholder approval from both companies, and regulatory approvals.

Already, BC Partners, which holds preferred stock of Office Depot representing around 22% of the company, has agreed to vote in favour of the deal. 

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