Sycamore Partners Buys Staples for $6.9 BN

Sycamore Partners, a private equity firm, is buying Staple Inc., an office-supply retailer, for $6.9 billion, a bold bet on the company whose shares have been declining in recent years and it would be the biggest leveraged buyout of the year.

Sycamore is expected to pay $10.25 per share for Staples in a deal that would be announced on Wednesday.

The $6.9 billion is a fraction of what Staples was worth at its highest a decade ago, when its market cap was $19 billion. The price is a reflection of Staple’s decreasing fortunes in recent years as more office supplies retailing has moved online into the arms of Amazon.

In April, Staples said that it was exploring a possible sale. Sycamore Partners’ Managing Director Stefan Kaluzny, said that the deal will help Staples pursue its long-term strategy.

The deal caps more than a year of mayhem for Staples, which was saddened in an attempt to make its own acquisition in May 2016. The company tried to buy Office Depot Inc. for $6.3 billion to merge the two largest office-supply sellers, but the transaction was contradicted by antitrust regulators.

Staple’s stock closed Wednesday up 77 cents, or 8.4%, to $9.93, fueled by a late-afternoon report of a deal. The stock rose another 1.5% in extended trading after the deal was announced.

Staple’s yearly sales came to $18.2 billion, a 6.1% decreased in its most recent fiscal year, compared to $25 billion five years earlier and its continuing operations lost $459 million in 2016.

In May, Staples reported that first-quarter sales dropped 4.9% from the previous year to $4.1 billion. It has shut 18 stores in North America during that period , leaving it with 1,237 locations in the U.S. and 304 in Canada. It sold a majority stake in its European business to Cerberus Capital Management,  a private equity firm.

The change in shopping patterns, like the shift to online buying, have affected office-supplies megastores like Staples. Amazon has become a top competitor to Staples for corporate customers.

Meanwhile, Sycamore Partners is a New York based private equity firm focused on retail and consumer investments. It has more than $3.5 billion in capital under management and its holdings include Belk Department Stores, Hot Top and Jones New York.

It has prevailed over other private firms in the auction for Staples, which also has a big business supplying corporate and government clients.

“With an iconic brand, a winning strategy, and dedicated and passionate associates who are deeply focused on the customer, Staples is truly an outstanding enterprise,” Kaluzny said.

Sycamore is known for seeking retail brands and trying to turn them around. However, Staples has been struggling to shed its retail image. By 2020, the company expects to get only 20% of revenue from retail locations, down from about 40% now. The rest will be generated by delivery and online sales.

According to a report, the Staples acquisition is scheduled to close by the end of 2017. Sycamore lined up financing from UBS Group AG, Bank of America Corp,’s Merrill Lynch, Deutsche Bank AG, Credit Suisse Group AG, Royal Bank of Canada, Jefferies Group LCC, Wells Fargo & Co. and Fifth Third Bank.

Meanwhile, Staples got financial advice on the deal from Barclays Plc and Morgan Stanley.

“The Sycamore Partners’ team shares Staples’ entrepreneurial spirit and long-term vision,” Staples CEO Shirah Goodman said in a statement. “This transaction will enable us to drive greater value for our customers and immense opportunity for our business.”

However, by 4:42 AM GMT-4, Staples, Inc. traded 8.41%, or 0.77, to $9.93. It opened in $9.20, with a session high of $9.97, and a session low of $9.16. Its market capitalization was 6.42 billion, and its dividend yield was 4.83%.

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