8:56 p.m. | Updated
It was a paragraph buried on Page 4 of an earnings release, under the heading of “other matters.” Yet what those four sentences revealed sent bankers and lawyers who had been working all night on a deal scrambling early Wednesday morning.
The earnings release, from the office supplies chain Office Depot, appeared shortly after 7 a.m. and inadvertently disclosed the terms of a long-awaited merger between the company and OfficeMax. The announcement disappeared from the company’s Web site quickly, but not before a gaggle of news outlets began running full-fledged reports about the deal.
At that time, bankers and lawyers for the two companies were still negotiating the final language of the merger agreement. The mistaken early publication of the release — since blamed on the data provider Thomson Reuters — prompted Office Depot’s chief executive, Neil R. Austrian, to call up his counterpart at OfficeMax, Ravi K. Saligram, and apologize.
More than two hours later, the companies formally announced their combination.
The episode recalls other times that major company news was published prematurely. Last fall, Google’s third-quarter earnings were published three hours early; the technology giant blamed R. R. Donnelley & Sons, its filings agent, for the mistake.
The chief executives played down the inadvertent disclosure as a harmless mistake, since the announcement was scheduled before the markets opened anyway.
“When two big Fortune 500 companies merge, occasionally mishaps happen,” Mr. Saligram said in an interview.
And Thomson Reuters apologized in a statement, saying it regretted the error and would take steps to prevent such a mistake from happening again.
But people involved in the deal privately bemoaned the unexpectedly bumpy ride, which knocked off kilter a carefully choreographed announcement meant to emphasize what they called a transformative merger of equals.
The union will combine two of the big retailers of staples and notepads, a major effort to combat years of losing sales to bigger, nimbler rivals. Both chief executives said that combining their companies could yield $400 million to $600 million in cost savings. It will probably lead to significant job cuts, as the companies seek to shrink their combined footprint of over 2,500 stores.
Both companies disclosed big drops in their sales for the fourth quarter on Wednesday: Office Depot’s revenue slipped 12 percent from the year-ago period, to $2.6 billion, while OfficeMax’s fell 7.4 percent, to $1.7 billion.
And both have also been under pressure from investors. Office Depot is fending off Starboard Value, an activist hedge fund that holds a 14.8 percent stake and has called for a major change in strategy. And OfficeMax has contended with Neuberger Berman, an investor with a 5 percent stake that has called for bigger payouts to shareholders.
“The whole industry and every analyst thought this made sense,” Mr. Austrian said in an interview. “The timing was right at this point in time.”
Shares of Office Depot fell 16.7 percent on Wednesday, to $4.18, while those of OfficeMax slid 7 percent, to $12.09. The decline wiped out some of the gains both stocks enjoyed after word of the deal talks emerged on Monday.
Negotiations have been held in earnest since at least last summer, people briefed on the matter said.
One important negotiating point that was resolved early on was ensuring that the deal could be presented as a “merger of equals.” Though Office Depot is paying a premium for OfficeMax — it is issuing 2.69 new shares for each share of the target, valuing the smaller retailer at about $1.2 billion as of Tuesday’s closing prices — neither company’s chief has a lock as the leader of the combined company.
Indeed, both Mr. Austrian and Mr. Saligram will remain in place while board members from each company run a search for a new chief executive, which could be either man. Also undecided: the new company’s name and whether it will have its headquarters in Office Depot’s home of Boca Raton, Fla., or OfficeMax’s base in Naperville, Ill.
People involved in the deal said that the compromise, which took about two months to complete, was important in bringing both companies to the negotiating table.
“We both put our egos aside,” Mr. Austrian of Office Depot said. “It’s not a win for one side and a loss for another.”
Both Office Depot and OfficeMax also wanted to emphasize that they would remain competitors until the deal was approved by shareholders and antitrust regulators. That is a nod to the collapse of a proposed merger of Office Depot and Staples more than a decade ago, which was blocked on anticompetitive grounds and left Office Depot reeling for years.
Mr. Saligram of OfficeMax argued on a call with analysts that the regulatory environment has shifted since. Both companies have lost ground not only to Staples, but also to online outlets like Amazon.com and bulk retailers like Target and Wal-Mart Stores.
“This industry has completely changed,” he said.
Should the deal fall apart because of antitrust concerns, neither company will be liable for a termination fee, executives said on the analyst call.
Company executives and advisers also spent significant amounts of time negotiating with BC Partners, an investment firm that owns the equivalent of 22 percent of Office Depot’s stock. Under the terms of Wednesday’s deal, BC Partners will own no more than 5 percent of the combined company’s voting shares and will have no representatives on its board.
DealBook: Office Supply Rivals' Merger Leaked by a Wayward Report
This article
DealBook: Office Supply Rivals' Merger Leaked by a Wayward Report
can be opened in url
http://mainnewster.blogspot.com/2013/02/dealbook-office-supply-rivals-merger.html
DealBook: Office Supply Rivals' Merger Leaked by a Wayward Report
