July 30, 2013, 4:48 PM

OfficeMax and Office Depot merger expenses could reach $450 million

Transition team changes with the departure of OfficeMax’s CFO.

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Office Max Inc. and Office Depot expect cost savings to range from about $130 million to $200 million in the first full year following their merger. Total savings are projected to approach $600 million, weighed against $350 million-$450 million in one-time expenses associated with the merger, including transaction expenses, the companies said in a joint statement yesterday. The capital investment required to reach those savings could add another $200 million.

The companies outlined potential savings from combining their office supplies companies including the following:

 

  • Purchasing efficiencies. An estimated $130 million-$200 million in savings are expected from purchasing efficiencies related to the combined cost of goods sold, including vendor and SKU consolidations.
  • Supply chain. Approximately $70 million-$100 million in estimated savings are expected from combining the North American supply chains. The companies said “supply chain network optimization, along with transportation and delivery efficiencies, will generate these significant savings.”
  • Advertising and marketing. The companies estimate savings of $70 million-$100 million from advertising and marketing efficiencies. A substantial amount of these savings would come from reducing duplicative efforts in weekly inserts, media and catalogs.
  • Selling, general and administration. An estimated $130 million-$200 million in savings to come from overall selling, general and administrative cost efficiencies. Specific tactics were not disclosed.

The transition process hit a bump in the road with last week’s announcement that Bruce Besanko, executive vice president, chief financial officer and chief administrative officer of OfficeMax, was leaving the company. He had been co-chairman of a joint transition committee along with Mike Newman, executive vice president and chief financial officer of Office Depot. Besanko is leaving to become the executive vice president and chief financial officer of Supervalu Inc., a grocery wholesaler and retailer, effective Aug. 6.

Steve Parsons, executive vice president and chief human resources officer of OfficeMax, took over Besanko’s role, and Newman continues as co-leader of the committee, the companies said. Deb O'Connor, senior vice president, finance and chief accounting officer, will assume the role of interim chief financial officer for OfficeMax.

The merger closing is still on track for later this year. “We remain optimistic that the merger will close by the end of the 2013 calendar year, and we continue to work cooperatively with the FTC (Federal Trade Commission) as it conducts its review of the proposed combination,” says Neil Austrian, chairman and CEO of Office Depot. On July 10 stockholders of both companies approved the merger.

The merger, which was announced in February, would yield a company with $7.2 billion in 2012 web sales, based on data in Internet Retailer’s 2013 Top 500 Guide.

Office Depot is No. 7 in the Internet Retailer 2013 Top 500 Guide and OfficeMax is No. 11.

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