Staples (SPLS) announced Wednesday it intends to buy rival Office Depot (ODP) in a $6.3 billion deal, betting that the key to higher profits is operating on an even larger scale.
That’s the same calculation Office Depot made not long ago, when it bought OfficeMax.
“Office Depot will make Staples bigger, and most importantly, we also believe Office Depot will make Staples better,” Staples CEO Ron Sargent said on a conference call with analysts.
Over time, the multiple brands will be combined under “one global name, Staples,” he said.
An attempt to control costs
In this digital age, people just aren’t buying pens and pencils like they used to, and Staples is feeling the pressure from all sides, including from giants WalMart (WMT) and Amazon (AMZN, Tech30).
That’s why Staples last year announced plans to close 12% of its stores. It currently has upwards of 1,300 locations in the United States, and securities filings show Office Depot has about 1,900.
The struggling office supply retailer said the merger will mean cost savings of about $1 billion per year.
Staples will “better optimize our retail footprint (and) minimize redundancy” — business language that usually means more store closings and layoffs, although management did not address the scope of potential cuts.
It will also continue to offer more than the traditional paper and printer ink.
“Next year, we’ll be pushing to 50% of our sales are not office supplies anymore,” said Sargent. “We have a well-developed copy and print operation … (and) we are now selling over a million” individual items online, he said, and Office Depot touted its furniture business.
Second attempt at a merger
The purchase announced Wednesday would unite the three brands, but it still must be approved by regulators.
The government scuttled a previous merger attempt between Staples and Office Depot in 1996, but approved the Office Depot and OfficeMax deal more recently.
Staples said the talks that produced this deal began in September.
A deal was pushed by Starboard Value, an activist investor that owns a stake in both companies. Earlier in the week, investors cheered rumors that a deal was close. In premarket trading on Wednesday, Staples slipped about 2% while Office Depot climbed over 6%.
Postal workers object
The deal is strongly opposed by members of the American Postal Workers Union, who say it would lead to higher prices for consumers and layoffs for employees.
The union called on the FTC and the Justice Department to block the merger.
“Staples is an anti-worker corporation, and we don’t want to see its reach expanded,” said the postal union’s President Mark Dimondstein. “We will vigorously oppose this merger. It’s bad for workers and bad for consumers.”
Postal workers have criticized Staples for years for operating “mini post offices” in dozens of stores. The union says the locations, which are staffed by Staples employees, are exacerbating the Postal Service’s financial problems.
–CNNMoney’s Matt Egan and Paul LaMonica contributed to this report