Office Depot agrees to purchase Viking $2.7 billion stock deal gives leader a stronger direct-marketing arm; Retailing


DELRAY BEACH, Fla. -- Office Depot Inc., the world's largest office-products retailer, agreed yesterday to buy Viking Office Products Inc. for about $2.7 billion in stock, as it moves more into direct marketing of products ranging from pencils to computers.

Office Depot will swap one share for each of Viking's 87.1 million shares. The offer for Viking, the world's largest seller of office products through catalogs, is 30 percent higher than Viking's closing price Friday.

Office Depot, which operates 614 stores, and its main competitor, Staples Inc., have made big acquisitions in direct marketing after antitrust objections scuttled their proposed $4 billion merger in July. Viking's highly profitable direct-marketing business also brings Office Depot into faster-growing international markets.

"Viking is the best catch of the business-to-business companies in the office products industry," said Mark Mandel, retail analyst with ABN Amro Inc., who has "buy" ratings on both stocks. "Both Office Depot and Staples are expanding their distribution systems and expanding outside the U.S."

Shares in Torrance, Calif.-based Viking rose $5.875, to $29.8125, while Office Depot shares fell $3.375, to $31.0625.

By buying a mail-order company whose business is mainly outside the country, Office Depot is betting that the transaction can easily win approval from antitrust regulators. Viking's sales are mainly to small businesses in the United States, Europe and Australia.

"There should be no antitrust problems," said analyst Peter McMullin of Southeast Research Partners. "In the antitrust review last year, it became clear regulators believed mail order is different than stores."

Office Depot said the combination is expected to increase earnings by 1 cent to 2 cents a share in 1999 and about 6 cents in 2000. The acquisition will result in savings of $35 million a year in 1999 and $55 million a year in 2000 as it lowers costs with more efficient purchasing, production of catalogs and distribution.

In 1997, Office Depot had sales of $6.7 billion, while Viking had sales of $1.3 billion in the fiscal year that ended June 27.

About 63 percent of Viking's revenue came from overseas, primarily from Europe. All of Delray Beach, Fla.-based Office Depot's stores are in the United States and Canada.

"Office Depot will achieve faster growth in Europe and other international markets," McMullin said.

Office Depot Chairman and Chief Executive David Fuente said the acquisition will let Office Depot expand to England and Germany faster than it could on its own.

Viking will be operated as a separate subsidiary and maintain its brand. The company has been able to charge somewhat higher prices than the office superstores because of its exceptional customer service, said money manager Colin Ferenbach of Haven Capital Management, which owns 196,000 Viking shares.

"The Viking management has done a better job than Office Depot," he said. "Viking is attractive because of its superior service."

Pub Date: 5/19/98

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