Staples, backed by private equity firm Sycamore Partners, is seeking to acquire Office Depot parent ODP Corp. for $2.1 billion, and may want to sell off Office Depot's CompuCom IT services business unit as part of the M&A process, Staples disclosed January 11.
Updated January 19, 2021: Office Depot declined the Staples takeover offer but indicated that it is open to an alternative deal, The Wall Street Journal reports.
Original report from January 11, 2021: Continues below.
A letter from Staples' parent to the ODP board of directors stated:
"We may increase our proposed valuation (i) for logical strategic divestitures that ODP may execute to unlock value, such as the sale of its CompuCom business and/or (ii) if ODP conducts a comprehensive sale process for its U.S. commercial business unit (the "B2B Business")."
Amid Staples' proposed deal, $ODP shares rose nearly 15 percent in trading the morning of January 11, 2021.
Staples and Office Depot: Merging Together, and Divesting CompuCom?
Staples and Office Depot have attempted to merge before. A federal judge blocked Staples' proposed $6.3 billion acquisition of Office Depot in 2016, citing concerns about the proposed deal potentially reducing competition in the retail office supply marketplace.
Both Staples and Office Depot have struggled to evolve their businesses since that time, especially amid heightened competition from Amazon Web Services (AWS) and other online businesses. Private equity firm Sycamore Partners ultimately acquired Staples and took the office supplies retailer private in September 2017.
Meanwhile, Office Depot acquired CompuCom for $1 billion -- a lofty 10 times earnings -- in October 2017. The IT services business unit has generated mixed performance under ODP’s ownership — though CompuCom President Mick Slattery described key business progress to ChannelE2E in June 2020.
Despite that apparent progress, Office Depot was exploring the potential sale of CompuCom by November 2020, ChannelE2E reported at the time.
Big Retail Companies and MSPs: M&A Deals Have Struggled
Big retail companies have stumbled multiple times in the MSP and IT services markets. In addition to the struggling Office-CompuCom business combination, Staples once owned Thrive Networks and Best Buy once owned mindSHIFT. Both MSPs were ultimately sold off and have generally performed better outside of retail business ownership. M/C Partners currently owns Thrive, and Ricoh now owns mindSHIFT.