Office Depot/Viking: big numbers

Jul 01, 1998 9:30 PM  By

Just six weeks after rival and one-time merger partner Staples bought office supplies cataloger Quill (see Catalog Age, May), $6 billion office supplies retailer Office Depot signed a definitive agreement to merge with $1.3 billion cataloger Viking Office Products. The one-for-one stock swap is valued at about $3 billion, and the deal is expected to close by the end of the third quarter.

Viking will become a wholly owned Office Depot subsidiary. Irwin Helford continues as Viking chairman, plus he becomes vice chairman of the combined company; Bruce Nelson remains Viking’s president/ CEO; David Fuente, chairman/ CEO of Office Depot, is chairman/ CEO of the merged company; and John Macatee is promoted to president/COO of the combined firm.

“Office Depot approached us after its deal with Staples fell through last summer,” says Charlotte Wiethoff, vice president of administration and corporate secretary at Viking. (The Federal Trade Commission rejected the proposed Staples/Office Depot merger, citing antitrust concerns.) “For the past year, we’ve been thinking about whether to remain independent or to merge with another company.”

For Viking, Office Depot’s 614 stores in the U.S. and Canada, 70 local sales offices, 21 delivery centers and three national telemarketing centers will bring tremendous negotiating and buying power to the Torrance, CA-based cataloger. “It’s not that we couldn’t survive without this deal, but we needed stronger buying power in the U.S.,” Wiethoff says. “Our U.S. business is $550 million compared to Office Depot’s $6 billion.”

For Office Depot, the deal gives the Delray Beach, FL firm a 63% increase in the mail order business as well as a strong international catalog business. While Office Depot operates retail stores in 10 countries including France, Japan, Mexico, Poland and Thailand, most international activity has been in the form of joint ventures and only Mexico remains profitable, Wiethoff says. Viking, on the other hand, operates in the U.K., France, Germany, Austria, Ireland, Holland, Belgium and Luxemburg as well as Australia, and its international business accounts for nearly two-thirds of overall sales. “Its established overseas infrastructure was an important factor” in the deal, says Gary Schweikhart, Office Depot’s vice president of public relations.

If the merger goes through, Office Depot will have paid about a 110% premium on Viking’s ’97 sales. and nearly 30 times 1997 EBIT. As Dan Binder, investment officer at New York-based Brown Brothers Harriman Ltd., says in a recent report, “Any way you look at it, this acquisition was expensive.” But with the synergies between the two companies, the fact that Viking has no debt, and the strategic nature of the acquisition, Binder says his firm thinks Viking is well worth the price. “It will separate Office Depot from most of the competition and support its growth in the next millennium.”