Office Depot, Inc. (NYSE: ODP), a leading global provider of office supplies and services, today sent a letter to all shareholders urging them to vote the white proxy card in favor of Office Depot’s ten director nominees and their ongoing efforts to successfully close the OfficeMax transaction and unlock significant value for all shareholders. In the letter, Office Depot also highlights why it believes activist investor Starboard Value LP (Starboard) and its nominees could significantly disrupt not only the progress and momentum made on the OfficeMax transaction (as integration planning and a CEO search are already well underway), but also the realization of substantial synergies from the planned merger. Starboard’s purported plan for the Company, which they unveiled just a few weeks ahead of the annual meeting, also threatens Office Depot’s core operational improvements by pushing the Company to make outsized cuts in critical business functions. A copy of the letter follows: August 7, 2013 Dear Fellow Shareholder: Our annual meeting of shareholders on August 21, 2013 is now just two weeks away and we are writing to you today to underscore that your vote at this meeting will determine the future value of your investment in Office Depot. We are urging all shareholders to vote the WHITE proxy card today in support of our nominees for Office Depot’s Board of Directors, who are best positioned to guide the Company through its value-creation opportunities. Over the course of the last week, your vote FOR our nominees has become even more critical. Vote on the WHITE Proxy Card to Ensure that Your Company Remains on Course to Unlock Significant Value We urge you to disregard any proxy materials from Starboard Value, LP, an activist investor in the Company’s stock which is threatening to throw the Company’s recent progress off track. Your Board strongly believes that at this time the insertion of Starboard’s nominees into the preparation process around the Company’s planned merger with OfficeMax would imperil the continued, successful implementation of our strategic plan and integration. Our ongoing integration work is critical to delivering the significant value inherent in our merger and is being led by joint teams from both Office Depot and OfficeMax with the added guidance of The Boston Consulting Group (BCG). BCG has advised that each month of delay in the integration process will result in the loss of $12M in synergy savings for shareholders. Moreover, any synergies unrealized in the first 18 months are unlikely to be realized at all. We urge you to let the Board and management continue to focus on creating value for you -- please vote on the WHITE proxy card today. Preparation for the Merger is Already Well Underway This is a critical moment in your Company's history, and one that is years in the making. The OfficeMax merger is a pivotal step in the strategic plan put in place by this Board in 2010, and it is a step we have been intensely focused on ever since.
Since integration planning began in May, the Board and management teams from Office Depot and OfficeMax have already:
- Hired BCG as an external integration advisor, after interviewing five top-tier integration firms, and they are already actively engaged in the process.
- Established an Integration Management Office (IMO) and 17 teams – 12 integration planning teams and five platform teams with joint representation from Office Depot and OfficeMax.
- This includes an informal customer experience team – a cross functional working group that cuts across the Company’s three sales channels as well as Marketing, Merchandising, IT and Finance.
- Participated in a two-day Integration Leadership Summit with more than 90 executives, Board members and advisors to work through risks and interdependencies.
- Identifying priorities and creating specific action item planning for the combined Company across all areas of functionality.
- Performing a detailed risk assessment of business continuity for Day 1 and synergy realization for Year 1.
- Establishing Day 1 and Year 1 technology requirements in close coordination with the IT teams from both companies.
- Building a strategy for indirect goods and services to drive significant Year 1 synergies.
Do Not Let Starboard Disrupt the Vital CEO Search ProcessAnother critical step in our integration planning process, already well underway, is the search for a new CEO for the combined Company. Progress to date includes:
- Hiring executive search firm Korn/Ferry International to conduct an exhaustive search process with over 100 candidates currently under consideration and active interviewing taking place.
- Identifying criteria to guide the CEO search process:
- Ideally a public company CEO with Wall Street credibility and a global perspective; strong executive from Fortune 100 organization could also be considered.
- High integrity, team building, transformational leader with a proven track record.
- Experienced business integrator who has achieved synergy and value creation.
- Starboard suggests that $215 million of G&A reductions can be achieved. However, Starboard's baseline figures are in error and this sort of reduction would require IT and Finance costs be reduced by close to 60%, potentially crippling the Company's daily operations.
- Starboard suggests more can be done to rationalize Supply Chain operations. The Company has transformed its network footprint (from 33 facilities to the current 15) to a structure we feel is best in class in many categories.
- Starboard's assessment of the Company's distribution costs does not recognize customer demands unique to the office products space, and has used "back of the envelope" math with highly flawed (if not irrelevant) benchmarking to suggest a $122 million cost savings opportunity that simply does not exist.
- Starboard has falsely "identified" $317 million of EBIT opportunities tied to "service and category extension" opportunities that include a poorly constructed and simplistic view on developing service sales and new category offerings.
- Starboard’s plan gives little, if any, attention to the capital and operating expense that would be required to launch some of the ideas they have framed so very loosely -- particularly the $476 million of "growth" initiatives.
- Tellingly, Starboard’s 100-day work plan shows “Merger Planning” as just one line-item out of 11 different initiatives -- an allocation of objectives that demonstrates little understanding of the Company-wide effort and focus required to make a merger of equals happen in the real world.
Starboard’s Proposal Poses Massive Risk to the OfficeMax Merger:Vote the WHITE Card Today to Support Your Board’s Continued Momentum Your vote is important in this election, and we urge you to vote TODAY so that your voice is heard. To elect our nominees for Office Depot’s Board of Directors, please vote by telephone, by Internet, or by signing and dating the enclosed WHITE proxy card and returning it in the postage-paid envelope provided. Allow your board and management team to do what is in the best interests of all shareholders – unlock real value by executing on our strategic plan for operational improvement, closing the OfficeMax transaction, making progress on our CEO search, and continuing our integration planning efforts. Vote the WHITE card today. Thank you for your support.
|W. Scott Hedrick||Neil R. Austrian|
|Lead Director||Chairman and Chief Executive Officer|