Shares in Naperville-based OfficeMax Inc. soared 20 percent Tuesday on a report it is in advanced merger talks with Office Depot Inc.
And Office Depot shares were up 9 percent after the Wall Street Journal reported the two companies were in advanced discussions, citing person familiar with the negotiations, with a deal possible as early as this week.
Currently, the deal is expected to be structured as a stock-for-stock transaction, the person said.
Neither company responded to requests seeking comment.
One of OfficeMax's top shareholders, Neuberger Berman, said it would support a merger with Office Depot depending on terms of the deal, according to a portfolio manager at the firm.
Responding to media reports, Benjamin Nahum of Neuberger Berman, told Reuters in an interview that his preference would be for OfficeMax to declare a special dividend before merging with Office Depot. "In our view this would facilitate a fair deal."
Neuberger Berman said OfficeMax shareholders should be compensated for "the balance sheet strength that we bring to this combined entity."
The news came months after the investment firm called on the third-largest U.S. office supply chain to return money to shareholders in the form of a dividend or share repurchases and raised the specter of a proxy fight next year if the retailer fails to comply.
According to Thomson Reuters' data, Neuberger Berman owns 4.76 percent of OfficeMax, making it the third-largest shareholder of the Naperville company.
OfficeMax is expected to report its quarterly earnings on Thursday.
While the pair up had been rumored for years, one analyst said Monday that he believed a deal was less likely after a report last week that Office Depot is in talks to sell its remaining 50 percent stake in its Mexican operations.
Scott Tilghman, an analyst with investment firm B. Riley & Co. said that similarities in the pair’s U.S. and Mexican operations were thought to be a cornerstone of the consideration to combine.
But even if Office Depot does sell its Mexican stake, Tilghman said a deal would still make sense as both companies struggle to gain traction against competitor Staples Inc. and sites like Amazon.com.
By combining, the pair could cut costs by shedding stores and streamlining operations without having to raise prices. Tilghman estimates the companies could get rid of 20 percent of their combined stores and still hold onto customers.
Both companies have struggled in recent years from declining revenue in their retail stores. In OfficeMax’s most recent quarter, it was able to grow net income by cutting costs despite lower revenue. Slumping retail sales were somewhat offset by OfficeMax’s U.S. contract business, where it works directly with businesses to help operate more efficiently and reduce office expenses.
If combined, OfficeMax and Office Depot, the world’s second and third largest office products companies by revenue, would still not eclipse the segment’s largest business, Staples Inc.
Office Depot, based in Boca Raton, Florida, has 1,675 stores world-wide, annual sales of about $11.5 billion and some 39,000 employees, the Journal said. OfficeMax, operates roughly 900 stores in the United States and Mexico, generates about $7 billion in annual sales and has 29,000 employees, the Journal said.
Shares of OfficeMax closed at $13, up $2.25 Tuesday on the New York Stock Exchange. Shares of Office Depot rose 42 cents to close at $5.02.
- Samantha Bomkamp and Reuters contributed to this report
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OfficeMax, Office Depot shares soar on merger talk
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OfficeMax, Office Depot shares soar on merger talk
