Office supply companies OfficeMax Inc., based in Naperville, and Office Depot Inc. are in advanced talks to merge, the Wall Street Journal reported, citing people familiar with the matter.
The deal is expected to be a stock-for-stock transaction, the Wall Street Journal said on Monday, adding that the precise terms could not be learned.
The deal is not yet done, and talks could still fall apart, the Journal reported. An announcement could come as early as this week, the Journal added, citing the sources.
OfficeMax is expected to report its quarterly earnings on Thursday.
While the pair up had been rumored for years, one analyst said Monday that he believed a deal was less likely after a report last week that Office Depot is in talks to sell its remaining 50 percent stake in its Mexican operations.
Scott Tilghman, an analyst with investment firm B. Riley & Co. said that similarities in the pair’s U.S. and Mexican operations were thought to be a cornerstone of the consideration to combine.
But even if Office Depot does sell its Mexican stake, Tilghman said a deal would still make sense as both companies struggle to gain traction against competitor Staples Inc. and sites like Amazon.com.
By combining, the pair could cut costs by shedding stores and streamlining operations without having to raise prices. Tilghman estimates the companies could get rid of 20 percent of their combined stores and still hold onto customers.
Both companies have struggled in recent years from declining revenue in their retail stores. In OfficeMax’s most recent quarter, it was able to grow net income by cutting costs despite lower revenue. Slumping retail sales were somewhat offset by OfficeMax’s U.S. contract business, where it works directly with businesses to help operate more efficiently and reduce office expenses.
If combined, OfficeMax and Office Depot, the world’s second and third largest office products companies by revenue, would still not eclipse the segment’s largest business, Staples Inc.
Office Depot, based in Boca Raton, Florida, has 1,675 stores world-wide, annual sales of about $11.5 billion and some 39,000 employees, the Journal said. OfficeMax, operates roughly 900 stores in the United States and Mexico, generates about $7 billion in annual sales and has 29,000 employees, the Journal said.
Shares of OfficeMax closed at $10.75 on Friday on the New York Stock Exchange. Shares of Office Depot closed at $4.59. Both are approaching their respective 12-month highs.
- Samantha Bomkamp and Reuters contributed to this report
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Report: Merger near for OfficeMax, Office Depot
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Report: Merger near for OfficeMax, Office Depot
