Private equity firm Sycamore Partners has reached an agreement to acquire Staples (NASDAQ:SPLS) for $6.9 billion. Sycamore’s offer of $10.25 a share represents a 20 percent premium over the company’s stock price in early April, before initial reports of a potential sale emerged. Robert Sulentic, the company’s chairman, said in a statement, “Staples’ board believes that this process has led to a transaction which is in the best interests of our stockholders, as well as Staples and its employees.”
Sycamore will borrow much of the money it needs to fund the buyout from a consortium of banks including UBS, Bank of America Merrill Lynch, Deutsche Bank, Credit Suisse, Royal Bank of Canada, Jefferies, Wells Fargo Bank and Fifth Third Bank. Bank of America and Deutsche Bank advised Sycamore, and Kirkland & Ellis provided legal advice. Staples was advised by Barclays and Morgan Stanley, and received legal advice from WilmerHale.
The deal is the largest buyout so far this year in the United States and a rare bet by a private equity firm in the U.S. retail sector. Buyout firms have shied away from leveraged buyouts of U.S. retailers for the past two years amid a wave of bankruptcies in the sector. However, Staples has a healthy balance sheet with very little debt, just about $1 billion in total.
In recent years, Staples has seen increased competition from online retailers such as Amazon.com, mass merchants such as Walmart, warehouse clubs such as Costco, and electronics retail stores like Best Buy. Staples had sought a merger with Office Depot to remain competitive, but the deal was blocked by a federal judge on antitrust grounds. The companies abandoned their merger efforts last year.
Sales and gross profits at Staples have fallen for each of the last four full years. Staples reported $18.2 billion in revenue last year, down from $21.1 billion five years ago. The company’s stock has fallen sharply from about $18 a share just two and a half years ago to roughly $7 earlier this year.
To cope, Framingham, Massachusetts-based Staples has been shrinking the number of stores it operates. The company said in its annual report that it planned to close about 70 stores in North America this year. The company currently has 1,255 stores in the United States and 304 in Canada.
The deal is subject to shareholder approval and is expected to close by the end of the year. Shira Goodman will remain as Staples CEO.