Essendant to buy contract business from Staples and Office Depot

February 17
8:16 AM 2016

Office Depot and Staples entered into a deal to sell revenues from office supply contract business as well as related assets worth over $550 million to Essendant. As per the terms of the deal, Essendant will pay nearly $22.5 million to Staples. Essendant will purchase over 25% of revenues from Fortune 100 firms and nearly half from Fortune 500 firms.

The acquisition of contracts from Staples will boost Essendant presence among huge corporate clients and also enhance its business potential in the industry. In addition, the deal will allow Essendant's dealers to compete effectively with their peers in the market.

The agreement is subject to regular closing conditions and the accomplishment of proposed merger of Office Depot and Staples. The contract business and assets involved in this acquisition relate mainly to office supply dealers who focus on woman-owned and minority businesses. According to Ron Sargent, chief executive officer and chairman of Staples, the deal will strengthen Essendant business portfolio and enable dealers to aid woman-owned and minority businesses to strive for potential clients.

Upon closing of the transaction deal, Essendant expects the transition costs to have a minimal impact on its first-year earnings per share. Essendant also anticipates making additional investments of about $100 million in the company's working capital as a back up to its core business.

With regard to the proposed merger with Office Depot, which was announced in February 2015, Staples has filed a Form S-4 with the Security Exchange Commission. The form includes a proxy statement in which Office Depot creates a brochure of Staples. The registration statement was made effective on May 15, 2015, and Office Depot dispatched the proxy statement to its shareholders on May 19, 2015. Office Depot received its shareholders' approval for the merger on June 19, 2015. Both the proxy and registration statements include significant information regarding Office Depot, Staples and other matters associated with the merger.

In December, the Federal Trade Commission (FTC) litigated to stop the merger deal, as the merger of Staples and Office Depot will crush the competition in the office supply industry and increase the prices for consumers, Bloomberg reports. The FTC also thwarted a previous effort by Staples to purchase Office Depot in the 1990s.

In March, a district court in the US will review the petition for the initial order, which will stop the merger transaction until the close of a hearing in front of an administrative law jury of FTC. FTC wants to stop this merger transaction in order to evade monopoly dominance in the industry.

Essendant's intention to purchase the contract assets of Staples and Office Depot will enable it to compete nationally. The transaction will also boost its business portfolio and strengthen its market share.

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