Staples' lengthy courtship pays off
$2.6b acquisition aids retailer's bid to expand corporate deliveries
Staples Inc. yesterday finally reached an agreement to acquire Corporate Express NV for $2.6 billion - allowing the office supply company to shift its focus from its retail stores to the lucrative business of delivering to companies.
The acquisition, which will be Staples largest ever, will shift the Framingham-based company's business mix from primarily selling products to individuals and small businesses to delivering to large corporate customers - an area Corporate Express dominates. The Dutch company accepted Staples' offer after three bids, four months of negotiations, and a plea to Corporate Express shareholders.
"The most transformational part of the deal is the change it will have on our business model," said Ronald Sargent, chairman and chief executive of Staples. "To think what [creator] Tom Stemberg built 22 years ago and what Staples has become, it's incredible."
Staples opened it first store selling office supplies in Brighton in 1986 when mom-and-pop stores sold paper and pens alongside milk and bread. The company offered office products at a significantly lower price. Back then, the company sold almost exclusively to small businesses and professionals.
Over the years, Staples broadened its reach overseas. In 1998, the company bought Quill Corp. to expand its catalog and direct sales operation. Last year, the company acquired American Identity from Republican Financial Corp., a deal that gave Staples a foothold in corporate- branded merchandise and strengthened the company's contract division, which handles deliveries to corporate customers.
Staples' courtship of Corporate Express started in February when it made a $2 billion bid for the company. Corporate Express rebuffed that bid as well as the second bid of $2.3 billion in May, saying they were too low. In May, Staples took its offer directly to Corporate Express shareholders.
Later that month, as a defensive tactic, Corporate Express made a bid to acquire its rival France-based Lyreco. The deal with Staples requires Corporate Express to withdraw that offer.
Staples' interest in Corporate Express comes as it looks to grow its contract business with corporate customers. While Staples is the world's largest seller of offices supplies, Corporate Express is the world's largest distributor, selling only to companies.
Currently, sales of office products make up 60 percent of Staples' sales, with 40 percent coming from its contract delivery business. After the acquisition is completed, Staples' contract delivery business will account for 60 percent of sales.
Sales at Staples' stores have slowed as customers tighten their purse strings in the tougher economic climate. But contract delivery is the company's fastest growing and most profitable business.
Staples, which has about 1,775 stores in North America, last month reported that first-quarter total sales were up 6 percent, to $4.9 billion, compared with the year-ago period.
But sales at North American stores open at least a year, a key measure of a retailer's performance, decreased 6 percent. Its North American delivery business to small and midsize companies, in contrast, reported a sales increase of 8 percent.
Yesterday, Staples shares closed at $24.38, up $1.23, or 5.31 percent, over the previous close.
"The acquisition will move Staples to a leadership position in the contract (large company) segment in North America," said Credit-Suisse analyst Gary Balter in an equity research report. "And will create a solid base on which to build its global contract footprint with a No. 2 position in Europe and a No. 1 position in Asia-Pacific."
Jenn Abelson of the Globe staff contributed to this report. Angel Jennings can be reached at ajennings@globe.com.
