ODP Corp., the holding company for Office Depot-Office Max, announced Wednesday that it will split the company into two separate, publicly-traded companies — one for its retail consumer and small business products and one for its distribution operations — in the first half of next year.
Amid an acquisition pursuit by rival office supplies giant Staples, ODP said its board of directors unanimously approved the separation plan that will allow the two companies to "pursue market opportunities, accelerate growth and unlock significant value for shareholders and all stakeholders."
Upon the separation, the two companies will be:
- ODP – a provider of retail consumer and small business products and services, distributed via approximately 1,100 Office Depot and OfficeMax retail locations and via e-commerce from officedepot.com
- NewCo – a B2B solutions provider (ODP’s Business Solutions Division contract business, Grand & Toy and ODP’s independent regional office supply distribution businesses) serving small, medium and enterprise-level companies. NewCo will also own the company’s newly formed B2B digital platform technology business, including BuyerQuest, as well as the company’s global sourcing office and its other sourcing, supply chain and logistics assets.
ODP Corp. noted that while ODP and NewCo will be separate, independent public companies, they will share commercial agreements that will allow them to continue to leverage scale benefits in such areas as product sourcing and supply chain.
The separation is planned to happen through a distribution of shares of NewCo as a tax-free dividend to ODP’s shareholders as of a record date to be determined by the ODP's directors, after which ODP shareholders will own 100 percent of the equity in both of the publicly-traded companies.
Of course, the separation comes as Staples is still pursuing acquiring at least part of ODP Corp. despite ODP's decline of a previous offer.
In mid-March, ODP publicly rejected a $2.1 billion proposal from USR Parent, the Sycamore-affiiated owner of Staples, to buy certain ODP assets, citing a lack of clarity of specifics from Sycamore in its proposal. A couple of weeks later, USR Parent said Staples would evaluate all alternatives in its pursuit of ODP, including, but not limited to, all of ODP or certain select assets, which may include ODP's retail and consumer-facing business, its business operations in Canada and certain other assets. That was the latest publicly-shared development between the two companies until Wednesday's separation announcement.
"We believe creating two focused, pure-play companies will unlock significant opportunities by improving our ability to meet the needs of our customers, while better matching assets and investment profiles of both companies to generate greater value for our shareholders,” said Gerry Smith, CEO of ODP Corp. "Maximizing the strategic focus and financial flexibility of each entity and aligning their go-to-market strategies and capital investments will enable us to meet customer demand. In addition, positioning their respective growth trajectories and shareholder-specific return profiles will achieve appropriate market valuations. The separation will also provide exciting opportunities for our employees, whose dedication and talent will enable both companies to realize their full potential."
ODP Corp. also reported its 2021 first quarter financial results Wednesday, showing that sales of $2.37 billion were down 13 percent year-over-year, with an operating profit of $55 million and net profit of $53 million.
The company's Business Solutions Division (BSD), which will comprise the core of NewCo, comprised 47.6 percent of ODP's total sales in Q1 at $1.13 billion, down about 16 percent year-over-year. Q1 operating profit was $17 million on operating margin of 1.5 percent. ODP's Retail Division had Q1 sales of $1.04 billion (43.9 percent of total), down about 10 percent year-over-year. Retail operating profit was $100 million on operating margin of 9.6 percent.
ODP said 44 percent of BSD's Q1 revenues came from advacency categories including cleaning and breakroom, PPE, technology, funirture and copy and print, while the unit's contract channel continued to be hurt by impacts from COVID-19, though that contract channel saw stronger demand late in the quarter as more businesses and school systems returned to normal operations.
ODP said its lower retail sales reflected planned closures of underperforming stores, with 149 fewer retail outlets at the end of Q1 compared to a year earlier.