One month after competitor Staples expanded its presence in direct marketing with the acquisition of Quill Corp., Office Depot Inc. announced plans to acquire mail-order office supply giant Viking Office Products Inc. for $3 billion in stock.
Viking will become a wholly owned subsidiary of Office Depot., Delray Beach, FL, and will maintain its headquarters in Torrance, CA. The two brands will remain separate.
Office Depot chairman and CEO David Fuente will become chairman and CEO of the combined company. Viking chairman and CEO Irwin Helford will remain chairman of Viking and become vice chairman of the combined company. John Macatee, president and chief operating officer of Office Depot, will be president and COO of the new company, and Viking president and COO Bruce Nelson will be CEO and president of Viking and joined the board of the new company.
The companies said the merger would increase their ability to meet customer demands in different mediums and bring $35 million in 1999 savings from synergies. And Office Depot said Viking's strength overseas made it a desirable partner.
“Viking has built a strong international infrastructure, particularly in Europe. The upshot of that is that infrastructure — the marketing, buying merchandising, activity and the MIS and finance activity — is the same kind of infrastructure necessary to build retail businesses and contract stations or businesses,” Fuente said.
“Our belief is we will be able to move forward in countries we don't operate in, such as the UK and Germany, and use Viking's corporate infrastructure to far more rapidly add retail stores and contract stations or businesses.”
Viking said the combined company would have a unique ability to grow into new markets and through new mediums.
“We will enter new markets, new countries, new geographies together and we'll do it with one comprehensive strategy and with a combined team that I know will earn customer business of every size — not just small, but medium and large accounts as well,” Helford said. “All this was never possible before and may not be possible again, and all this made the decision easy and clearly the right one.”
The companies listed other benefits, including a projected $19 million in savings from buying costs in 1999; a savings of $4.2 million in 1999 and $18.2 million in 2000 from combining warehousing, distribution and delivery costs, particularly in nine areas where the two companies both have warehouses that perform similar functions; and $4 million in savings on production, circulation and distribution between the Viking catalog and Office Depot's catalog.
Office Depot mails 70 to 90 million catalogs a year, but does not break out catalog revenues because it considers the catalog a driver to retail sales.
The deal, so soon after the announcement of Staples' acquisition of Quill, Lincolnshire, IL, was particularly ironic since Office Depot's own acquisition by Staples, Westborough, MA, was rejected by federal regulators last summer. However, both sides noted the Staples/Quill merger did not influence merger talks.
“We had been in discussions with Viking before the announcement of the Staples/Quill deal so it didn't impact our decision,” Fuente said.
Although Staples and Quill had stated that their priority was competing overseas, where Viking dominates the mail-order office supplies business, industry consultants do not see the mergers affecting the companies' ability to compete overseas.
“[Staples and Quill] originally had difficulty competing with Viking internationally because Viking has been doing it for years and has been very successful at it,” said Maxwell Sroge, president of Maxwell Sroge Co., catalog consultants in Evanston, IL. “Viking has a big head start, and I don't think that Viking will roll over and play dead.”
Viking officials also said did not think the company's new position as a wholly-owned subsidiary of a retail giant would change its nexus status and require the company to collect state sales taxes from customers in other states. But the company will watch closely how the issue is treated in relation to the Staples/Quill merger, Nelson said.
