Skip to main content

The Globe and Mail

Office Depot and OfficeMax: One M&A that's way overdue

Reuters Breakingviews delivers agenda-setting financial insight. Its global correspondents react to stories as they develop, delivering sharp and provocative commentary on big financial news as it breaks.

Office Depot and OfficeMax are lucky to have each other. Uniting the U.S. purveyors of pens, paper clips and printer toner is about as obvious as it gets in M&A. The potential synergies could be worth more than the market value of the two companies combined. As the Internet ravishes retail, at least this corner can cling to life by merger.

Consolidation is overdue. The encroaching power of the likes of Amazon and Target has been evident for years. Office Depot and OfficeMax are also good partners. Plenty of nearby stores could be closed and their own suppliers squeezed. Based on past deals, savings of about 2.6 per cent of revenue, or some $450-million (U.S.) a year in this case, look realistic, Sanford Bernstein analysts wrote in a prescient note on Friday, ahead of weekend reports of the two companies being in talks.

Story continues below advertisement

These cost cuts, taxed and capitalized, would be worth about $3-billion to shareholders. That's an impressive sum given the two companies were only worth around $2.1-billion combined before the merger talks were reported. Investors initially added another $400-million on Tuesday as they anticipate details on a possible all-share combination.

There will be questions about competition, of course. Trust busters ordinarily take a dim view of two top players joining forces. In 1997, regulators scotched a $4-billion deal that would have united market leader Staples with Office Depot. Given the radically altered market dynamics 16 years later, however, it's hard to see a merger between numbers two and three in sales as a powerful monopoly in the making.

OfficeMax is on track to generate a net margin of just 0.9 per cent in 2013, according to the average estimates of analysts collected by Thomson Reuters. Office Depot is seen struggling to eke into positive territory. Revenue at the top three chains is forecast to stagnate, but online competition could be harsher as other specialty retailers like Blockbuster, Circuit City and Borders learned. While Offices Max and Depot might together slow the decline, their industry is still bound to die a death of a thousand paper cuts.

Report an error
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to