Staples and Corporate Express Deal Changes Retailer's Focus

Ending speculation about the possibility of a hostile takeover, Staples reached a friendly agreement to buy Dutch office supplies distributor Corporate Express NV in a deal valued at €3.1 billion (US$4.8 billion at the current exchange rate). The deal will shift Staples'market focus to 60 percent contract and delivery.
 
The decision to change the business focus of Staples followed the numbers: delivery in North America for Staples grew 14 percent in 2007, making it the fastest growing and most profitable of the company's offerings. Retail, which currently makes up 60 percent of Staples'business, has been struggling in the current economy.
 
In addition to the dramatic growth of delivery and contract services, the acquisition provides opportunity to expand in markets where Staples already does limited business, such as Europe where Staples provides mainly catalog delivery service, and opens doors to new markets, including Australia and New Zealand. Corporate Express CEO Peter Ventress will take on the role of president for Staples International and will oversee business operations outside of the U.S. and Canada.
 
To be honest, Australia wasn't one of the next two or three things that we needed to do, but it's a very nice billion-dollar-plus business that's making 8-percent margins,"Staples COO Mike Miles said at the William Blair &Company Growth Stock Conference on June 18.
 
Both Miles and Staples spokesman Paul Capelli say because the deal hasn't closed, it's too early to comment on specific changes the acquisition will bring about in both companies. Integration discussions have just begun, Capelli says. The most likely target for employment shifts would be in areas currently served by both. "In New York, you have Staples trucks and Corporate Express trucks passing each other on the streets all the time,"Miles says. "We want to be able to improve upon the efficiency in those areas."
 
The acquisition may slow future expansion of the company as the "law of large numbers"catches up to Staples, Miles says. Instead, growth will be focused on expanding product offerings and improving margins in existing markets.

History of the Deal
The sticking point of the proposed acquisition was twofold for Corporate Express, according to press releases. The company's boards felt the initial offers of €7.25 and €8.00 per share significantly undervalued the company. In addition, the idea of being acquired was contrary to an October decision by the boards that staying a standalone company was in the best interest of Corporate Express.
 
In an attempt to hold off the deal with Staples, the boards proposed a merger with France-based office supplies distributor Lyreco. The deal was awaiting shareholder approval at a June 17 meeting when Staples upped the ante by bypassing the boards and approaching shareholders directly with an increased offer of €9.15 per share. Corporate Express board members agreed to enter negotiations after Staples announced it had a commitment from 23.3 percent of the shareholders to vote against the Lyreco transaction.
 
The eventual agreed-to offer of €9.25 per common share represents a premium of 8 percent over the closing share price average in the one-year period ending Feb. 4, 2008. The price is a 114 percent premium over the closing share price on Feb. 4. Feb. 4 was the day before rumors of an offer on Corporate Express began circulating in the market.
 
As a condition of the acquisition agreement with Staples, the boards for Corporate Express withdrew support for the merger with Lyreco.
 
Staples, Framingham, MA, is in 22 countries in North America, South America, Europe and Asia. Sales for 2007 were $19.4 billion. Corporate Express, based in Amsterdam, has operations in 21 countries in North America, Europe, Asia and Australia. Sales for 2007 were €5.6 billion (US$8.7 billion at current exchange rates).