Two of the big names in office supplies are hoping that a merger can make the business of selling staplers and toner more profitable.
Office Depot and OfficeMax are in talks to combine in an all-stock deal that may be announced as soon as this week, a person briefed on the matter said on Monday.
While talks are at an advanced stage, they may still fall apart, this person cautioned.
Should a deal be reached, it would unite two of the main retailers of office supplies after years of suffering at the hands of rivals. Traditional retailers, laden with big real estate holdings, have struggled against nimbler competitors.
Combined, the companies reported about $4.4 billion in revenue for thir third quarter last year; by contrast, Staples disclosed $6.4 billion in sales for the same time period.
The age of the Internet and bulk discounters has also weakened the two companies, as Amazon.com and Costco emerged as significant competitors capable of undercutting their prices.
The possibility of a merger between Office Depot and OfficeMax has been bandied about for some time. Analysts and investors have argued that as profitability shrinks, traditional office supply retailers would need to combine to cut costs and elimina! te overcapacity. And with the leader in the field, Staples, having signaled little desire to buy, attention has fallen on its two closest competitors.
Late last month, analysts at Goldman Sachs speculated that the chances of a merger had risen to as high as perhaps 50 percent.
The two companies’ stocks have risen significantly over the past year, largely on speculation that a union between the two was in the works. OfficeMax’s shares have jumped 87 percent, closing on Friday at $10.75; those in Office Depot have climbed 41 percent, closing on Friday at $4.59.
Office Depot has also been under pressure from an activist hedge fund, Starboard Value, which sent a letter to the retailer’s board last fall. In the missive, the investment firm called for more costs and a greater focus on higher-margin businesses like copy and print servces.
With a 14.8 percent stake, Starboard is the company’s biggest investor.
Office Depot has weighed ways to improve its stock price since then, including a potential sale of its 50 percent stake in its Mexican unit to Grupo Gigante. But it also has sought to protect itself by adopting a shareholder rights plan, a corporate defense maneuver aimed at shielding the company against a hostile takeover.
A spokesman for Office Depot declined to comment. A representative for OfficeMax wasn’t immediately available for comment.
News of the talks was reported earlier by The Wall Street Journal online.
