Office Depot Grapples With Office Max Merger Issues

By Kara Murphy, contributing writer, Integrated Solutions For Retailers

Company in process of downsizing, determining store closures

Finalizing the $1.2 billion merger of rivals Office Depot and Office Max was just the start of the work for company executives.

The merger, completed in November, created a $17 billion business with more than 2,200 stores nationwide, making it the second largest office supply retailer in the nation. Staples is first.

But the merger didn’t mean insta-success for the larger company, which saw a fourth-quarter adjusted loss and disappointing sales. Along with the challenges and costs associated with merging, the company has also been grappling with how to tackle industry challenges that include heightened competition from online retailers and a continuing shift to the use of office technology.

The full-year outlook also missed goals, executives said during the first earnings call since the merger.

Office Depot saw its shares fall 12 percent after the earnings call.

But the company has taken several steps to streamline its newly merged operations and work toward future success. Those steps include hiring Chief Executive Roland Smith, who was brought in after the merger because of his background in corporate turnaround and integration. During the earnings call he said he is “optimistic” he can turn Office Depot into a stronger company. His 15 years in leading companies includes six company turnarounds and two mergers. He has worked for Delhaize America LLC and Wendy’s among others.

In his first months with Office Depot, Smith has:

• Hired a new finance chief and filled two new positions: a president of North America operations as well as a chief strategy and an innovation officer.
• Identified more than $600 million in annualized cost savings by 2016 that comes from combining companies, including a better negotiating power with vendors, combined advertising purchases and other initiatives.
• Cut corporate headcount by 35 percent. That gives the company a combined HQ staff of about 3,700. The OfficeMax employees that will remain with the company will relocate from Naperville, IL to Boca Raton, FL where Office Depot’s headquarters are. Office Depot notified the state of Illinois that it plans to close OfficeMax’s Illinois headquarters by early 2015. There are 1,600 employees at the Illinois headquarters. The company said it expects to pay $400 million in integration expenses and severance pay from 2014 to 2016.
• Retained a consulting firm to study its real estate strategy and determine a number of potential store closings. Stores will begin closing later this year, Smith said.

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