January 20, 2021
In a letter to Sycamore Partners, the owner of Staples, ODP Corporation rejects the acquisition offer, but outlines a “more direct path to achieving synergies for shareholders of both companies, without raising substantial regulatory risk.
In its letter, ODP proposes a combination of consumer-focused retail operations of Office Depot and Staples as a more direct path to achieving synergies. The company notes that Sycamore’s proposal does not adequately address regulatory risk to Office Depot shareholders.
The company also explains that the process for the sale of CompuCom IT Services Business is already underway as a result of the strategic review announced in November and reaffirms its focus on B2B operations and other growth Initiatives to accelerate value creation.
The full content of the letter is published below:
The Board of Directors of The ODP Corporation (“ODP”) has carefully reviewed and considered USR Parent Inc.’s (“Staples”) January 11, 2021 proposal to acquire 100% of ODP’s issued and outstanding common stock for $40.00 per share in cash, consistent with our fiduciary duties, and in consultation with our financial and legal advisors. The Board has unanimously concluded that there is a more compelling path forward to create value for ODP and its shareholders than the potential transaction described in your proposal.
Your proposal makes it readily apparent that Staples’ sole interest rests in acquiring ODP’s retail and consumer-facing ecommerce operations. To accomplish that, your proposal, among other things, contemplates the divestiture of our commercial business unit (the B2B Business) to a hypothetical third-party buyer that has yet to be identified, on terms yet to be proposed, as well as the sale of our CompuCom IT services business.
Instead of this approach, ODP is pursuing a comprehensive strategy that we believe can deliver significant value to ODP shareholders without introducing material regulatory risk. This approach comprises:
(1) Building on our B2B strategy and other growth initiatives, which are already creating value for our shareholders; and
(2) Moving forward with the process for the sale of CompuCom, which we have already initiated as a result of the strategic review of that business that we announced in November.
In addition, we are open to combining our retail and consumer-facing ecommerce operations with Staples under the right set of circumstances and on mutually acceptable terms. Indeed, we believe that such a transaction could be executed more efficiently and with far greater certainty and less regulatory risk than your proposal. It would also help maintain competitiveness against non-traditional retailers and optimise ongoing choices for consumers.
One such option is a joint venture, which we believe is a viable path toward maximising synergies and efficiencies for both companies that we would expect to result from such a transaction, and which would equally share the risks and benefits between our companies. Another option would be an acquisition by Staples of ODP’s retail and consumer-facing ecommerce operations for a price that enables our shareholders to benefit from such synergies.
Though both of these options require regulatory approval, we believe the regulatory risk of pursuing a retail-only transaction to be significantly lower than your proposed transaction. A transaction with you that is limited to our retail and consumer-facing and ecommerce business would eliminate the time, complexity and uncertainty created in your proposal by the need to identify a suitable third-party buyer willing to acquire the B2B Business on terms that would be mutually acceptable to our respective companies. Our proposed alternatives would also create a competitor in a dynamic business environment that would greatly benefit consumers.
In contrast, your proposal would expose ODP to material uncertainty, significant financial burden, and the risk of significant damage to ODP’s business in the event that regulatory approvals could not be obtained, as the experience of our prior failed transactions has shown. If Sycamore remains determined to propose a potential acquisition of the entire company, we call on you to expressly address the regulatory uncertainty by committing to bear the risk of potential antitrust obstacles or required remedies through a customary “hell or high water” provision.
In the meantime, ODP’s foremost goal remains maximising value for our shareholders – and to that end, we believe that the strategies for our B2B and CompuCom businesses are the right ones.
Specifically, we announced in November as part of our third quarter results that management would perform a business review of CompuCom, evaluating all options by which to maximize the business’s full potential and drive forward its future value and success. As a result of that review, the Board previously determined to explore a value-maximising sale of the CompuCom business, and we have initiated that process.
As we advance that effort, we remain focused on serving our customers and executing our business strategy. We continue to implement our “Maximise B2B” restructuring plan, which is already delivering results, driving growth, achieving cost savings and paving the way for future success. ODP intends to push forward with this initiative, creating further value for our shareholders. We look forward to sharing details about other growth initiatives for our B2B segment during our upcoming earnings call.
In closing, ODP stands ready to discuss a range of transactions that would adequately compensate ODP shareholders for retail synergies and protect ODP from the financial impact of potential regulatory risks. What we do not plan to do, however, is engage in a transaction that, as history has shown, would likely result in a prolonged and expensive regulatory review process with no guarantee of success, without a commitment that Staples is willing to bear this risk through a customary “hell or high water” provision.
We urge you to instruct your financial and legal advisors to enter into a constructive dialogue along these lines, so that we can provide both companies with the opportunity to share in the opportunities, as well as the risks, of a potential combination of our retail and consumer-facing ecommerce operations while delivering maximum value to our respective shareholders.
In the meantime, know that the ODP team will remain focused on serving customers and moving forward with its strategy to deliver value.
Joseph S. Vassalluzzo
Chairman of the Board of Directors of The ODP Corporation
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