Staples and Office Depot to merge

Staples Inc, the leading supplies retailer in the US, has agreed to buy rival Office Depot Inc for $6.3 billion (£4.1 billion), creating a retail chain with about $39 billion in revenue and four thousands stores.

"This is a transformational acquisition which enables Staples to provide more value to customers, and more effectively compete in a rapidly evolving competitive environment," said Ron Sargent, chairman and chief executive officer of Staples.

The company said it would pay $7.25 per share in cash and 0.2188 of its shares for each Office Depot share as part of the deal, which is expected to help the new entity better compete against online rivals such as amazon.com.

However, the deal is likely to be scrutinised by antitrust regulators. They rejected Staples' attempt to buy Office Depot in 1997, citing antitrust concerns. 

But experts believe this time may be different because of an increase in the number of online retailers offering the same products.

“The competitive environment has changed, but the government will look carefully into the effects on prices,” Erik Gordon, a professor at the University of Michigan’s Ross School of Business, told Bloomberg. “The merger is a game changer.”

Greater cost savings

The two companies agreed to the merger after pressure from activist investor Starboard Value, saying this would lead to greater cost savings. Staples said it expected to generate at least $1 billion of annualised cost synergies by the third year after the completion of the deal.

The deal is expected to close by the end of 2015. However, Staples said it could call off the deal if authorities ordered divestitures that delivered more than $1.25 billion of Office Depot's 2014 US revenue, Reuters reports. It added it would pay a $250 million termination fee if the deal is scrapped.