To help pay for the deal, Office Depot may also need to dispose of a joint venture in Mexico.

A potential risk to the deal comes from antitrust authorities including the Federal Trade Commission and Department of Justice.

In 1997, the FTC's head, William Baer, opposed a merger proposal between Office Depot and Staples, citing the prospect of anti-consumer effects such as rising prices. Baer, who now heads the DoJ's antitrust division, is likely to play a key role in evaluating any proposed merger.

Still, the struggles of OfficeMax and Office Depot in recent years may indicate a changed office-supplies marketplace that could push a deal forward.

"The competitive landscape within the office-products retail channel has dramatically changed since the FTC nixed the proposed 1997 merger between Staples and Office Depot," Jefferies' Binder wrote.

"The rise of large players in the Internet retail channel and the entrance of club and mass channel to the office product market resulted in a significant increase in price transparency and competition," he added, while noting that Wal-Mart and Amazon have undercut prices up to 10% in some instances.

Shares of Office Depot, which has been struggling to compete with larger rival Staples, plunged 67% over the past five years prior to Tuesday trading, when reports of a deal first surfaced.

-- Written by Antoine Gara in New York

For more on M&A speculation, see Morningstar's 11 M&A stock picks for 2013.

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