Office Depot Inc and smaller rival OfficeMax Inc will combine in a $1.2 billion all-stock deal, the companies said on Wednesday, confirming an agreement inadvertently announced earlier in the day before it was completed.
The combined entity's name, headquarters location and CEO are all still undetermined, suggesting the companies were in a rush to get the deal confirmed after a draft accidentally went up on Office Depot's website.
Office Depot Chief Executive Officer Neil Austrian and OfficeMax CEO Ravi Saligram are both candidates for the top job, the companies said in a statement.
The error was reminiscent of Google's accidental earnings release last year, when a premature regulatory filing included a copy of the still-incomplete press release with the phrase "Pending Larry Quote" where CEO Larry Page's comment was supposed to go.
Office Depot declined to comment on how or why its release was posted prematurely. OfficeMax did not respond to requests for comment.
The deal calls for the exchange of 2.69 Office Depot common shares for each OfficeMax share. At Tuesday's closing prices, the transaction would be valued at $13.50 per share, or $1.17 billion, based on 86.7 million shares outstanding as of October 26.
Office Depot shares fell 3.4 percent to $4.86 in morning trading, while OfficeMax was up 6.8 percent at $13.89. At those prices, OfficeMax was trading above the value of the bid.
Office supply retailers, often seen as a barometer of economic health, have suffered as demand for their products fell after the recent U.S. recession. They also face strong competition from Amazon.com Inc and Wal-Mart Stores Inc in selling everything from pens and notebooks to furniture to government, businesses and individuals.
Office Depot and OfficeMax said combining would help them compete better with online retailers and warehouse clubs, among others. They expect the deal to yield annual cost savings of $400 million to $600 million within three years after its anticipated closing by the end of 2013.
Wall Street has clamored for this agreement, saying the office supply sector is ripe for consolidation. BB&T Capital Markets analyst Anthony Chukumba said the Office Depot-OfficeMax combination would help larger rival Staples, too.
"Clearly, you can't make this deal work unless you close a bunch of stores," he said. "Store rationalization is long overdue, and Staples will clearly benefit from just having fewer stores to compete with."
Staples has 39.9 percent of the U.S. office supply market, Office Depot 19.2 percent and OfficeMax holds 15.7 percent, according to Euromonitor International.
(Reporting by Phil Wahba; Additional reporting by Caroline Humer and Dhanya Skariachan; Writing by Ben Berkowitz; Editing by Lisa Von Ahn)