Adding Market-Leading Provider of World-Class IT Services with
Approximately $1.1 Billion in Sales to Create a Powerful Omnichannel
Tech Services Platform
Combines CompuCom’s Broad Set of Managed Technology Services with
Access to Office Depot’s Extensive Customer Base and Last-Mile Advantage
to Generate Substantial Growth Opportunities
Expects Over $40 Million in Estimated Annual Cost Synergies within
Two Years; Acquisition to be Accretive in Year One
Attractive Free Cash Flow and Significant Financial Flexibility to
Implement Office Depot’s New Strategy to Grow Recurring Business
BOCA RATON, Fla.--(BUSINESS WIRE)--Oct. 3, 2017--
Office Depot, Inc. ("Office Depot” or the “company”) (NASDAQ:ODP) today
announced it is pivoting the company from a traditional office products
retailer to a broader business services and technology products
platform. As the first step in this new strategic direction, the company
has entered into a definitive agreement to acquire CompuCom Systems,
Inc. (“CompuCom”), a market-leading provider of award-winning IT
services, products and solutions that enable the digital workplace for
enterprise, small and midsize businesses. The company also provided a
preliminary estimate of third-quarter financial results and a lowered
outlook for Office Depot’s stand-alone business for 2017.
“Technology is the office supply of the future,” said Gerry Smith, chief
executive officer of Office Depot. “Today marks a significant milestone
as we move to provide a unique business services platform for our
current and future customers. Acquiring CompuCom is the first step in
this new strategic direction. The combination of CompuCom’s enterprise
IT services with our millions of customers and approximately 1,400
distribution points gives us the credibility and scale to build a
sustainable platform and stand apart from the competition. The company
will create value for shareholders from a diversified revenue base with
a clear opportunity to grow higher value services and
Under the terms of the agreement, Office Depot will acquire CompuCom
from Thomas H. Lee Partners, L.P. ("THL"), a premier private equity
firm, for a total consideration of approximately $1 billion, which
includes the repayment of CompuCom debt and issuance of new Office Depot
shares. Following the transaction, THL will hold an equity position in
Office Depot of approximately 8% of total shares outstanding.
Founded in 1987, CompuCom provides highly-rated managed IT services to
businesses with over 5.1 million unique end users. CompuCom’s team of
approximately 6,000 licensed technicians is the largest employee field
technician workforce in North America, providing remote and onsite
technology support. CompuCom procures, installs and manages the
lifecycle of hardware and software for businesses, and offers IT support
services including remote help desk, data centers and on-site IT
professionals. CompuCom was positioned in the Leaders quadrant of
Gartner's® most recently released Magic Quadrant® for Managed Workplace
Services, North America. CompuCom has established long-term
relationships with hundreds of blue chip customers, including six of the
top 10 Fortune 500 companies, and many small- and medium-sized
businesses, including local franchises of national brands.
Compelling Market Opportunity
The combination represents a unique opportunity to bring world-class IT
support services to all of Office Depot’s customers, particularly
underserved small- and medium-sized businesses (SMBs).
$25 Billion Opportunity: Together, Office Depot and CompuCom
will be positioned to capture market share in a $25 billion, highly
fragmented market as the first company to provide a nationwide,
comprehensive network of enterprise-level tech services and products.
Targeted Small and Medium Business Model: The combined company
will have an unmatched position in serving SMB customers by providing
end-to-end award-winning IT services through its approximately 6,000
salaried, certified technicians nationwide and top-tier cloud and data
centers. This model will fit within Office Depot’s omnichannel
platform, particularly its last-mile footprint that offers access to
nearly six million SMBs within three miles of its approximately 1,400
Expect Increased Traffic and Services Revenue Improving Store
Profitability: CompuCom’s established SMB offering, Tech-Zone,
will be placed within Office Depot’s nationwide retail footprint,
providing immediate scale and driving traffic into Office Depot
stores. Added services revenue and increased foot traffic will improve
Immediate Cross-Selling Opportunity with Minimal Overlap: Both
Office Depot and CompuCom sales teams can capitalize on minimal
customer overlap to quickly begin cross-selling a full suite of
products and services, with an incentive structure focused on driving
Continued Focus on Core Enterprise Business: CompuCom will be
the technology services platform for Office Depot, expanding
CompuCom’s reach and enabling further efficiency initiatives in its
core enterprise business focused on automation and innovation.
Enhanced Management Expertise: Since the arrival of Gerry
Smith, who brings in-depth expertise in the technology sector, the
company has added several senior leaders, including chief marketing
officer, Jerri DeVard, chief legal officer, N. David Bleisch and chief
merchant and services officer, Janet Schijns, who collectively bring
proven experience in services and demand generation, in order to
unlock the full value of this combination.
“Together with Office Depot we can create a distinctive offering for our
enterprise and SMB customers and accelerate our growth,” said Dan Stone,
chief executive officer of CompuCom. “The workplace has truly moved to a
digital environment with the average worker having over four connected
devices. Office Depot’s established brand and large national footprint
will help to drive the expansion of our offerings to more markets and
build on our client-focused success to welcome new customers seeking
high-quality technology services and solutions.”
“We strongly believe in the compelling opportunity to create value for
shareholders in this combination and look forward to supporting Office
Depot in this next chapter,” said Soren Oberg, managing director at
Thomas H. Lee Partners. “Office Depot is an ideal partner for CompuCom,
as their strengths are highly complementary and, together, they will
have a strong foothold in the fragmented managed services market and
greater opportunities for growth.”
Stephen Hare, chief financial officer of Office Depot added: “With this
acquisition, we immediately add CompuCom’s significant, recurring
revenue stream and proven service offerings to our platform, allowing us
to quickly build scale. Together we will build deeper relationships with
our business customers and provide the solutions they need, while
generating long-term, sustainable value for our shareholders.”
The acquisition of CompuCom is expected to accelerate Office Depot’s
ability to enhance shareholder value and pursue topline growth. While
Office Depot intends to provide greater detail surrounding the long-term
financial impact of the transaction during its next earnings call in
November, Office Depot expects to:
Add approximately $1.1 billion of revenue
Deliver expected cost synergies of over $40 million within two years
Realize substantial revenue synergies over time as a result of the
opportunity for CompuCom to access Office Depot’s multi-channel
Office Depot has a demonstrated track-record of success in integrating
acquisitions and delivering synergies, including over $750 million in
cost savings from the OfficeMax acquisition alone.
Office Depot will finance the acquisition with new debt and the issuance
of approximately 45 million shares of its common stock to THL. Office
Depot expects to refinance CompuCom’s existing debt with a new term loan
of approximately $750 million. Following the close of the transaction,
Office Depot expects to maintain substantial financial flexibility with
low balance sheet leverage, strong liquidity, and positive free cash
flow available for debt repayment, capital returns to shareholders and
Office Depot remains committed to returning capital to shareholders
including its current cash dividend plan. The existing share buyback
plan authorized by the Board of Directors remains in place.
Preliminary Q3 Results and Full-Year Outlook (3)(6)
Office Depot expects to report its third-quarter 2017 financial results
in November. Based on a preliminary assessment, the company expects to
Total reported sales decline between 7-8% for the quarter including
Between 5-6% decline in comparable retail store sales.
Between 5-6% decline in constant currency sales within the BSD.
Adjusted operating income(2) between $125-$135 million for
Free cash flow(4) from continuing operations of
approximately $200 million for the quarter.
Approximately $750 million in cash and cash equivalents and
approximately $1 billion available under the Amended and Restated
Credit Agreement, for total available liquidity of approximately $1.75
billion. Total debt of approximately $285 million excluding
Office Depot expects to provide an updated long-term outlook, including
the impact of the CompuCom acquisition, with the announcement of its
third-quarter 2017 financial results, however the company has lowered
its outlook for 2017.
Adjusted operating income(2) for fiscal 2017 is now estimated
to be between $400-$425 million, excluding the impact of this
transaction, compared to the previous estimate of approximately $500
million. Depreciation and amortization for the year is still estimated
at $150 million with capital expenditures totaling $125 million compared
to the previous estimates of $150 million for capital expenditures. Our
updated guidance is driven by a number of factors, including:
Three hurricanes in the U.S. and Puerto Rico, where a significant
concentration of our retail and BSD customers are located,
particularly in Texas, Florida and Puerto Rico.
Lower sales and store traffic during this year’s back to school
period, which is typically a strong season for Office Depot.
Temporary higher supply chain costs arising primarily from transition
issues related to planned consolidation of vendors and warehouses.
Professional fees and other costs related to developing our strategy
and transition to a broader omnichannel business services platform.
“We have moved quickly to make the necessary management and operational
changes to address these performance issues, while investing in our
services platform to prepare for this transaction with CompuCom,”
commented Gerry Smith.
“We are focused on building stable and recurring service offerings that
leverage our omnichannel platform and deliver the solutions our
customers need, and strongly believe it can unlock significant value to
our shareholders as we position Office Depot for the future.”
This transaction is subject to customary closing conditions, including
required regulatory approvals. This transaction is not subject to a
shareholder vote and is expected to close by the end of the year.
Goldman Sachs & Co. LLC is serving as financial advisor to Office Depot.
Wachtell, Lipton, Rosen & Katz is serving as legal counsel. Weil Gotshal
& Manges LLP is serving as legal counsel to CompuCom.
Additional information regarding the CompuCom acquisition and
accompanying presentation can be found on Office Depot’s website in the
“Investor Relations” section.
(1) Source: Gartner "Magic Quadrant for Managed Workplace
Services, North America" by Daniel Barros, Helen Huntley, Karen A.
Hobert, January 30, 2017. Gartner does not endorse any vendor, product
or service depicted in its research publications, and does not advise
technology users to select only those vendors with the highest ratings
or other designation. Gartner research publications consist of the
opinions of Gartner's research organization and should not be construed
as statements of fact. Gartner disclaims all warranties, expressed or
implied, with respect to this research, including any warranties of
merchantability or fitness for a particular purpose.
(2) Adjusted amounts represent non-GAAP measures and exclude
charges or credits not indicative of core operations and the tax effect
of these items, which may include but not be limited to merger
integration, restructuring, acquisition, asset impairments and executive
(3) The company’s preliminary third quarter results and
full-year outlook in this release include non-GAAP financial measures
such as Adjusted Operating Income and free cash flow may exclude charges
or credits not indicative of core operations. Office Depot is unable to
provide preliminary results for comparable GAAP measures such as
operating income, net income or net cash provided by operating income
for the third quarter without unreasonable efforts because the exact
amount of these charges or credits are not currently determinable until
the closing procedures for the quarter is complete, but may be
significant. Accordingly, the company is unable to provide
reconciliations from GAAP to non-GAAP for these financial measures
without unreasonable effort, although it is important to note that these
charges or credits could be material to Office Depot’s third quarter
results in accordance with GAAP.
(4) Free cash flow is defined as net cash provided by
operating activities less capital expenditures. Capital expenditures
exclude the purchase of the company’s previously leased head office.
(5) The estimates reflect Office Depot’s preliminary unaudited
estimates and views on market trends observed year to date for 2017 and
are based on information available as of the date hereof. Actual
results and estimates may differ materially from the estimates and
trends described above due to developments or other information that may
arise between now and the time the financial results for the third
quarter or fiscal year are finalized. These preliminary results
should not be viewed as a substitute for our third quarter interim
unaudited consolidated financial statements prepared in accordance with
(6) Management of Office Depot believes that the presentation
of non-GAAP financial measures such as Adjusted Operating Income and
free cash flow enhances the ability of its investors to analyze trends
in its business and provides a means to compare periods that may be
affected by various items that might obscure trends or developments in
its business. Non-GAAP measures help to evaluate programs and activities
that are intended to attract and satisfy customers, separate from
expenses and credits directly associated with merger, restructuring, and
certain similar items. Our measurement of these non-GAAP financial
measures may be different from similarly titled financial measures used
by others and therefore may not be comparable. These non-GAAP financial
measures should not be considered superior to the GAAP measures, but
only to clarify some information and assist the reader.
About Office Depot, Inc.
Office Depot, Inc. is a leading provider of office supplies, business
products and services delivered through an omnichannel platform.
The company had 2016 annual sales of approximately $11 billion, employed
approximately 38,000 associates, and served consumers and businesses in
North America and abroad with approximately 1,400 retail stores,
award-winning e-commerce sites and a dedicated business-to-business
sales organization – with a global network of wholly owned operations,
franchisees, licensees and alliance partners. The company operates under
several banner brands including Office Depot, OfficeMax and Grand & Toy.
The company’s portfolio of exclusive product brands include TUL, Foray,
Brenton Studio, Ativa, WorkPro, Realspace and Highmark.
Office Depot, Inc.’s common stock is listed on the NASDAQ Global Select
Market under the symbol “ODP.”
Office Depot is a trademark of The Office Club, Inc. OfficeMax is a
trademark of OMX, Inc. ©2017 Office Depot, Inc. All rights
reserved. Any other product or company names mentioned herein are
the trademarks of their respective owners.
CompuCom Systems, Inc., a global company headquartered in North America,
provides IT managed services, infrastructure solutions, consulting and
products to Fortune 1000 companies committed to enhancing their end
users’ experience. Founded in 1987, privately held CompuCom employs
approximately 11,500 associates. For more information, visit www.compucom.com.
About Thomas H. Lee Partners, L.P.
Thomas H. Lee Partners, L.P. ("THL") is a premier private equity firm
investing in middle market growth companies, headquartered in North
America, exclusively in four industry sectors: Business & Financial
Services, Consumer & Retail, Healthcare, and Media, Information Services
& Technology. Using the firm's deep domain expertise and the internal
operating capabilities of its Strategic Resource Group, THL seeks to
create deal sourcing advantages, and to accelerate growth and improve
operations in its portfolio companies in partnership with management
Since its founding in 1974, THL has raised over $22 billion of equity
capital, acquired over 140 portfolio companies and completed over 360
add-on acquisitions which collectively represent a combined enterprise
value at the time of acquisition of over $200 billion.
This press release shall not constitute an offer to sell or the
solicitation of an offer to buy securities. The securities offered and
sold in the private placement have not been registered under the
Securities Act of 1933, as amended, or any state securities laws, and
may not be offered or sold in the United States absent registration, or
an applicable exemption from registration under the Securities Act and
applicable state securities laws.
FORWARD LOOKING STATEMENTS
This communication may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements or disclosures may discuss goals, intentions and expectations
as to future trends, plans, events, results of operations, cash flow or
financial condition, or state other information relating to, among other
things, Office Depot, based on current beliefs and assumptions made by,
and information currently available to, management. Forward-looking
statements generally will be accompanied by words such as “anticipate,”
“believe,” “plan,” “could,” “estimate,” “expect,” “forecast,”
“guidance,” “outlook,” “intend,” “may,” “possible,” “potential,”
“predict,” “project,” “propose” or other similar words, phrases or
expressions, or other variations of such words. These forward-looking
statements are subject to various risks and uncertainties, many of which
are outside of Office Depot’s control. There can be no assurances that
Office Depot will realize these expectations or that these beliefs will
prove correct, and therefore investors and stockholders should not place
undue reliance on such statements.
Factors that could cause actual results to differ materially from those
in the forward-looking statements include, among other things, the
ability to consummate the transaction between Office Depot and CompuCom
pursuant to the terms and in accordance with the timing described in
this press release, the risk that Office Depot may not be able to
realize the anticipated benefits of the transaction due to unforeseen
liabilities, future capital expenditures, expenses, indebtedness and the
unanticipated loss of key customers or the inability to achieve expected
revenues, synergies, cost savings or financial performance after the
completion of the transaction with CompuCom, the risk that the
refinancing of CompuCom’s outstanding debt is not obtained on favorable
terms, uncertainty of the expected financial performance of Office Depot
following the completion of the transaction, impact of weather events on
Office Depot’s business, impacts and risks related to the termination of
the attempted Staples acquisition, disruption in key business activities
or any impact on Office Depot’s relationships with third parties as a
result of the announcement of the termination of the Staples Merger
Agreement; unanticipated changes in the markets for Office Depot’s
business segments; the inability to realize expected benefits from the
disposition of the European and other international operations;
fluctuations in currency exchange rates, unanticipated downturns in
business relationships with customers or terms with the company’s
suppliers; competitive pressures on Office Depot’s sales and pricing;
increases in the cost of material, energy and other production costs, or
unexpected costs that cannot be recouped in product pricing; the
introduction of competing technology products and services; unexpected
technical or marketing difficulties; unexpected claims, charges,
litigation, dispute resolutions or settlement expenses; new laws,
tariffs and governmental regulations. The foregoing list of factors is
not exhaustive. Investors and stockholders should carefully consider the
foregoing factors and the other risks and uncertainties described in
Office Depot’s Annual Report on Form 10-K, as amended, and Quarterly
Reports on Form 10-Q filed with the U.S. Securities and Exchange
Commission. Office Depot does not assume any obligation to update or
revise any forward-looking statements.
View source version on businesswire.com: http://www.businesswire.com/news/home/20171003006503/en/
Source: Office Depot, Inc.
Office Depot, Inc.
Richard Leland, 561-438-3796