Staples Inc. is sharpening an already sharpened focus on its North American operations with an agreement announced today to sell its European business—comprised of corporate contract, online and retail operations with combined annual sales of about 1.7 billion euros (US$1.83 billion) across 16 countries—to Cerberus Capital Management. The companies didn’t say disclose the financial terms of the deal.
“One of our top strategic priorities has been to narrow our geographic focus on North America, and this is an important step toward simplifying our operations and better positioning Staples for sustainable long-term growth,” Staples president and CEO Shira Goodman said today.
The move follows an agreement announced in September by Staples rival Office Depot Inc. to sell its European business to the Aurelius Group, an investment firm. After aborting their planned $6.3 billion merger earlier this year because of antitrust opposition from the Federal Trade Commission, Staples and Office Depot have taken several steps to re-focus their businesses on North America.
Indeed, Staples is stepping up its focus on digital commerce and particularly on Staples Business Advantage, the e-commerce unit of its North American Commercial segment, or NAC, that caters to mid-size business customers. “We are positioning Staples Business Advantage as the growth engine of our company,” Goodman said last month on a conference call about the company’s fiscal third quarter ended Oct. 29.
NAC encompasses StaplesAdvantage.com and Quill.com, e-commerce sites that cater to companies with 10 or more employees. About 80% of NAC’s sales are through e-commerce, the rest through sales reps and customer contact centers. For the fiscal third quarter ended Oct. 29, NAC’s sales declined 2.9% to $2.110 billion from $2.173 billion in the year-earlier quarter, as company-wide sales fell 4.3% to $5.355 billion from $5.593 billion.
Staples doesn’t break out its European sales, but it says they have been declining while producing modest profits. For the third quarter ended Oct. 29, Staples says sales in its International Operations segment decreased 7.2% to $749 million from $807 million, “primarily driven by sales declines in Europe, partially offset by double-digit growth in China.” But it adds that operating income for International Operations improved slightly to $6 million from break-even a year earlier. “This primarily reflects improved profitability in Europe,” it says.
Under the agreement to sell Staples Europe, an affiliate of Cerberus will use the Staples brand and continue to maintain the Staples Europe headquarters with its existing employees in Amsterdam, Netherlands. Olof Persson, a Cerberus executive, will be appointed executive chairman of the new Staples Europe. Persson is a former president and CEO of Volvo Group, a manufacturer of trucks and construction equipment, which ousted Persson as chief executive last year under pressure from shareholders to increase profits.
Steven F. Mayer, senior managing director and co-head of global private equity at Cerberus, says Cerberus expects to build on the Staples brand and diversify into more product lines to re-ignite growth at Staples Europe. “We intend to instill a keen sense of urgency, focus, and commitment throughout the entire Staples Europe organization, enhance the company’s competitive position across its markets and channels, and return the business to growth by capitalizing on its many assets, including its well-recognized brands, strong customer relationships, dedicated sales force, advanced distribution and I.T. infrastructure, comprehensive pan-European footprint, and talented management and associates,” he says. “Our strategy is to invest in a variety of initiatives designed to strengthen Staples Europe’s position as the leading provider of solutions to small, mid-sized, and large businesses in Europe, including salesforce expansion, further diversification of products and services beyond office supplies, and next-generation technologies.”
Staples and Cerberus say they expect to close on the acquisition during the first quarter of Staples’ 2017 fiscal year, which begins in February 2017. Barclays is acting as exclusive financial advisor and Clifford Chance LLP as legal advisor to Staples. Kirkland & Ellis LLP and Linklaters LLP are acting as legal advisors to Cerberus.
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