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Sycamore to Carve Up Staples

Thursday, August 10, 2017  
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New regulatory documents filed with the US Securities and Exchange Commission (SEC) confirm that Staples Inc will split into three independently-run businesses after it has been acquired by private equity firm Sycamore Partners.

 

The 10 August SEC filing states: “At closing of the merger, Staples expects to separate its United States retail business [..] and its Canadian retail business, including the staples.ca business, […] into two separate Sycamore-affiliated entities. […] Each will be independently managed and capitalised following the closing of the merger […] and will be operated as independent businesses. The remaining business within Staples will consist solely of the NAD [North American Delivery] business.”

 

This confirmation adds weight to the theory that Office Depot will move to acquire Staples’ 1,200 US retail stores when the Sycamore transaction closes – assuming that Staples’ shareholders approve the deal when they convene for a special shareholder meeting on 6 September.

 

The separation of the two retail units – referred to officially as the “carveout transactions” – values the US and Canadian retail operations at a combined total of $1.35 billion, an amount that will be used as part of the financing arrangements of the NAD transaction.

 

Based on pro forma results to reflect the post-merger transactions, the ‘new’ Staples (ie, NAD) had sales for the 52 weeks to the end of April 2017 of $10.1 billion, made an operating profit of $63 million and recorded a pre-tax loss of $210 million. The new company will also be loaded up with long-term debt to the tune of $4.13 billion, according to the April 2017 pro forma results.

 

The SEC filing also shows that Staples has property and equipment assets that are valued at around $1.65 billion. That figure presumably includes the company-owned headquarters in Framingham which, if the company is split into three entities, will likely no longer be needed – or at the very least will be the subject of a sale and leaseback transaction.

 

Staples also provided preliminary adjusted NAD results for the second quarter of this year which ended on 29 July. Sales are expected to be between $2.4-$2.5 billion, roughly flat compared with last year, with growth at Staples Business Advantage offset by “modest declines” at Quill and Staples.com.

 

Pro forma adjusted EBITDA at NAD for the quarter is expected to be between $215 million and $225 million versus $265 million for the 13 weeks ended 30 July 2016. The decline is attributed, among other things, to supply chain workforce, sales force and marketing investments made this year.

 

Staples is expected to release its full second quarter results in the next couple of weeks.

 

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