The announced deal to merge OfficeMax and Office Depot would, presumably, help the combined company cut costs by eliminating duplicative positions and doing away with underperforming locations while giving it increased purchasing power and marketing clout. In short, the combination of the number two and three office supply chains should, theoretically, give the new company a better shot competing with Staples, the top-ranked chain in the category.
Based on current stats, the combined OfficeMax/Office Depot would begin with 68,000 employees worldwide and operate roughly 2,575 stores. The two chains currently generate $18.5 billion combined. Staples, as a point of comparison, generates roughly $24 billion in annual sales from stores and websites operating in 26 countries in the Americas, Asia, Australia and Europe.
According to a research note by Sanford C. Bernstein retail analyst Colin McGranahan, reported by The Wall Street Journal, the combination of Office Max and Depot could realize between $400 million and $700 million in synergies while creating "a much larger, more profitable, and more capable competitor against emerging competition from Amazon as well as existing competition from Staples."
Not everyone believes an OfficeMax and Depot marriage would work. Analysts at Janney write, "We are scratching our head to think of another merger anywhere near this size in retail where it has worked out well and returns have been strong."
"It's (Staples) a much better-managed company," Brian Yarbrough, an analyst for Edward Jones, told Bloomberg News. "There is such a gap here. That gap doesn't close by merging No. 2 and No. 3 that are much weaker than Staples."
What is the likelihood that the OfficeMax and Office Depot merger would succeed in making the combined company more competitive with Staples?