Office Depot has found itself in strife as innovative competitors cut into its antiquated business models. In a bid to transform and generate value to its shareholders, the company has hired Bain & Company to assist with a strategic review.
Staples and Office Depot are some of the US’ largest office supply companies. Office Depot, founded in 1986, today has revenues of $14 billion and employs approximately 49,000 associates. The company has, for a number of years, found itself in decline as, among others, market dynamics become more digital. Last year it was announced that rival firm Staples, which was also founded in 1986 and has a turnover of around $22 billion, would buy Office Depot in a cash and stock deal worth approximately $6.3 billion.
The Federal Trade Commission, however, filed an administrative complaint against the acquisition, claiming the acquisition violated antitrust laws on the basis of the combined entity reducing competition within the office supply space – the consequences of such a merger would negatively affect business customers across the US. The complaint was upheld by the US District Judge Emmet Sullivan in Washington, who blocked the $6.3 billion merger.
Following a recent court decision, Staples has backed out of the deal – paying Office Depot a $250 million break-up fee. Office Depot remains in a position of relative distress, however, having lost 38% of its share value since the start of the year. In a bid to find a path through the turmoil, the company, which operates about 1,800 stores, has hired management consultants from Bain & Company to assist with a comprehensive strategic review of the firm’s business.
The consultancy firm is currently working on a number of methods to structure the company’s capital and provide an improved return to shareholders. The strategic review of the business may lead to the closing more outlets in years to come (the firm already plans to shut down 400 outlets), but is said to mainly look at how the company can transform in order to compete within the changing business environment.
According to recent media reports, Office Depot is considering selling some of its European operations, despite completing a large restructuring effort of its European operations last year.
Chief Executive Officer Roland Smith comments “Our board and management team are committed to taking actions necessary to leverage this foundation and create value for shareholders. The news is not all bad, the 2013 merger with OfficeMax is delivering synergies exceeding $700 million.”