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TheStreet Open House

Office Depot (ODP) and OfficeMax (OMX) Merge: What You Need to Know

NEW YORK (TheStreet) -- Office Depot  (ODP) and OfficeMax  (OMX) and have completed their long-awaited merger, finalizing plans set in motion when the companies announced their intentions in February. Going forward, the combined company will trade under the Office Depot brand and use Office Depot's New York Stock Exchange-listed ticker.

Before inking the deal, both company reported quarterly earnings which failed to impress Wall Street. Office Depot reported earnings of 2 cents a share on revenue of $2.62 billion. Earnings fell short by 4 cents a share, though revenue was as analysts surveyed by Thomson Reuters had expected. OfficeMax reported earnings of 15 cents a share, 7 cents short of expectations, on $1.66 billion in revenue.

Both office supply stores were victim to sluggish sales as online giants, namely Amazon (AMZN), priced them out of the market. Office Depot reported total sales down 3% compared to a year earlier, while OfficeMax saw a 4.6% decline.

The merger is expected to create an office supplies powerhouse with combined annual sales of around $17 billion. The combined company said it will incur numerous one-time charges as it completes the merger process. Costs include $200 million in operating costs, $400 million in integration costs and at least $200 million in capital spending through to the end of 2016.

On the newly formed company's third-year anniversary, management expects to have realized between $400 million and $600 million in operational synergies. Combined, the office suppliers will also benefit from a more robust liquidity position. Based on 2012 financials, the companies expect to have access to more than $1 billion in cash and an additional $1 billion in credit facilities.

Office Depot will now run more than 2,200 retail stores, around 900 of which were formerly OfficeMax-operated. For the time being, the companies' online outlets will continue to operate as normal, as will respective loyalty programs.

The merged company's 12-person board consists of an equal representation of both companies and is responsible for the new CEO search process. Incumbent chief executives Neil Austrian of Office Depot and Ravi Saligram of OfficeMax will remain as temporary co-CEOs.

On Friday, the U.S. Federal Trade Commission gave its stamp of approval for the $976 million deal, the final obstacle to the companies' plans.

Office Depot was trading 1.1% lower to $5.59 on Wednesday. In the year to date, shares have gained 70.7%.

TheStreet Ratings team rates OFFICE DEPOT INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about its recommendation:

"We rate OFFICE DEPOT INC (ODP) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins and generally high debt management risk."

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