Office Depot’s parent company rejected a $2.1 billion buyout offer Tuesday from the investor group that controls rival Staples.
But the Boca Raton company, which has been cutting costs and reshaping its strategy to appeal more to businesses, said it would entertain other possibilities that would avert tough regulatory scrutiny.
On Jan. 11, a group led by Sycamore Partners offered to buy ODP Corp. for $2.1 billion, or $40 a share. Staples warned that if Office Depot did not cooperate, it would start to buy out the shares of other stockholders starting in March.
The negative response was a setback to ODP shareholders, who had seen their stock rise to $47.64 since the offer was made more than a week ago. The shares were off by nearly 2% to $44.98 in midday trading on Tuesday.
A previous $6.3 billion bid by Staples in 2016 was rejected by federal authorities on antitrust grounds. One year later, Staples was taken private by Sycamore Partners, which set up a subsidiary called USR Parent to control the longtime competitor of Office Depot.
According to a letter sent Tuesday from ODP to Sycamore, it would be better if Office Depot’s e-commerce and retail operations are sold to Staples to avoid the possibility of a protracted review by the Federal Trade Commission.
Another option would be a joint venture, said the letter, which was released Tuesday morning by ODP.
“Though both of these options require regulatory approval, we believe the regulatory risk of pursuing a retail-only transaction to be significantly lower than your proposed transaction,” ODP told the Staples owners.
“A transaction with you that is limited to our retail and consumer-facing and e-commerce business 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.” the letter said.
In a paragraph containing words that were underlined for emphasis, ODP also challenged Sycamore to specifically lay out how it would deal with the antitrust hurdles that it believes would be inevitably raised again by federal officials who rejected a deal on similar grounds five years ago.
“If Sycamore remains determined to propose a potential acquisition of the entire company, we call on you to expressly address the regulatory uncertainty by committing to bear the risk of potential antitrust obstacles or required remedies through a customary ‘hell or high water’ provision,” the letter said.
In the meantime, ODP said, the company’s “foremost goal remains maximizing value for our shareholders.”
