Potential Local Impact of Office Depot-Office Max Merger

No. 2 & No. 3 office supply chains are coming together in a mega deal

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    NEWSLETTERS

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    A view of an Office Max store and Office Depot sign.

    The Depot is going to the Max.

    Office supply retailers Office Depot and Office Max are combining forces to become one company. The $1.2 billion all-stock deal will help the No. 2 and No. 3 chains compete with industry leader, Staples.

    In the Philadelphia area, each chain operates 10 stores. Most stores are not in the same geographic areas, according to store information on the respective companies' websites. That could bode well for employees and consumers says Pavel Savor, University of Pennsylvania Assistant Professor of Finance.

    “If two stores are next to each other, one is more likely to close. If they’re miles and miles away that might be less of a likelihood,” says Savor, who teaches a class on mergers at the University of Pennsylvania’s Wharton School of Business.

    “I think for retailers, often one of the major motivations for doing a deal is nationalizing operations by kind of capturing the same number of sales, but with fewer outlets,” he said. “It may be the case though here that they may be looking at other markets to do this and not necessarily this one.”

    Office Depot operates 1,675 stores worldwide and Office Max more than 900 stores in the United States and Mexico. Neither company has said whether the merger would lead to store closures, but in a release today, officials called their international businesses “complementary…with minimal overlap.”

    Savor says companies typically embark on mergers to compete with larger competitors and save cash. Competition from Staples, online retailers like Amazon and discount sellers have weakened both retailers' hold on the market. Office Depot reported a $17.5 million loss for the last three months of 2012. Office Max reported a loss of $33.9 million on restructuring costs.

    OfficeMax expects the merger to save $400 million to $600 million annually by the third year of the deal.

    While reducing the number of competitors could lead to higher product prices for consumers, Savor says he wouldn’t expect that to be the case with this deal.

    “I think the market is competitive enough that I wouldn’t think that on the customer side, you would see a dramatic impact in terms of price rises,” Savor says.

    The deal will have to go through shareholder and regulatory approvals. The new company's name and its CEO have yet to be determined. Multiple requests for comment from both Office Depot and Office Max were not returned. 

    The Associated Press Contributed to this report.