OfficeMax, Office Depot Update Merger Progress
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OfficeMax Inc., Naperville, Ill., USA, and Office Depot Inc., Boca Raton, Fla., this week provided an update on the integration planning process and expected annual cost-saving synergies related to the companies' proposed merger. The two companies had agreed to a merger this past February, and then on July 10, stockholders of both companies approved the merger. The transaction is expected to close by the end of this year.
The integration planning process has made significant progress since being launched in May:
- An Integration Management Office (IMO) has been established to guide day-to-day integration design and planning, ensure interdependencies and risks are identified, and make certain that mitigation plans are developed. The IMO has created an overall integration methodology and schedule, with clear governance guidelines.
- Twelve integration planning teams, co-led by senior leaders of both companies, have been formed with the goal of ensuring business continuity, customer and talent retention, and synergy attainment. These teams have completed team charters, identified Day One priorities and action plans, and developed detailed work plans for their functional areas. These teams are in the process of identifying the critical initiatives to execute after closing in order to deliver the expected synergies and begin integrating the companies, identifying best practices within the respective companies, and designing an operating model and organizational structure for the combined company.
- Five integration platform teams have been established and are executing detailed work plans to support the IMO and integration planning teams with project management, synergy development, communications, change management, and talent management.
- This collective integration team, comprised of more than 150 seasoned leaders from both companies and with the support of a dedicated BCG team, has extensive industry and functional expertise, broad experience in the design and development of efficiency capture programs, and integration planning expertise for mergers of varying scale.
Based on their integration planning work to date, the companies reaffirmed confidence in their ability to realize $400-$600 million of total annual cost synergies by the end of the third year following the close of the merger, with synergies categorized as follows:
- Purchasing Efficiencies: An estimated total of $130-$200 million in synergies are expected to come from purchasing efficiencies related to the combined cost of goods sold, including vendor optimization, and SKU harmonization.
- Supply Chain: Approximately $70-$100 million in estimated synergies are expected to result from combining the North American supply chains. The companies believe that supply chain network optimization, along with transportation and delivery efficiencies, will generate these significant savings.
- Advertising and Marketing: The companies estimate savings in the range of $70-$100 million from advertising and marketing efficiencies. A substantial amount of these savings are expected to result from reducing duplicative efforts in weekly inserts, media and catalogs.
- Selling, General and Administrative: An estimated $130-$200 million in savings is expected to result from sales and support function efficiencies and standardization of processes.
The companies believe approximately one third of the $400-$600 million range of synergies are achievable in the first year following the close of the merger. The companies also reiterated their expectation to incur approximately $350-450 million in one-time costs, including transaction expenses, and approximately $200 million in capital investment to achieve the cost synergies.
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