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MERGER INTEGRATIONT E A M 3 3

J A N U A RY 6 , 2 0 1 4

Overview◦ Key Steps for Office Depot/Max:

◦ Appoint key staff◦ $600M Cost savings◦ Closing redundant stores

Overview Current Situation Operations Structure Branding Integration

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Star Alignment Model


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Strategy• Convenient• Both retail & online presence• Enhance simplicity

Structure• Flat structure

Human Resource Management• External HR for hiring during merger • Hire internally first

Rewards• Stock-based compensation (executives)• Group-based compensation (employees)

Structure• Two way communication• Joint decision making

CultureTeam orientedFamily atmosphere

Agenda◦ Current Situation

◦ Office Depot◦ Office Max

◦ Risks◦ External◦ Internal

◦ Operations◦ Organizational Structure◦ Branding◦ Integration Details

◦ Profitability and Growth◦ Potential Issues with Merger Integration◦ How to Mitigate Merger Integration Issues


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Office Depot Current Situation ◦ Negative profit◦ International sales sliding◦ Operating costs increasing◦ Minimal flexibility in financing gap◦ Lacking innovation


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Office Max Current Situation


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◦ Decline in sales – in both retail and contract segments◦ Low margins◦ Increasing delivery expenses◦ Increasing incentive compensation

External Risks of Both Companies

◦ Reliance on commodities ◦ Seasonality ◦ Foreign currency fluctuations◦ Competition◦ Extremely cyclical◦ Supply>Demand◦ Technology


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Internal Risks of Both CompaniesOffice Depot

◦ Loss of Government contracts

Office Max◦ Loss of Health Care contracts

Both◦ Loss of key talent


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Operations


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Current Actions We Support


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◦ Combining the suppliers (North America) enable us greater flexibility with AP and better prices

◦ Harmonization of products◦ Combine

◦ Distribution and delivery networks (North America)◦ Sales networks◦ Advertising◦ E-commerce programs◦ Combine/Close Stores create less brick and mortar costs

◦ Eliminate redundancies in support and sales functions ◦ Standardize processes lowers technological costs

Additional Actions We Suggest


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◦ Reduce SKUs to consolidate product line◦ Create online advertising strategy ◦ Close down underperforming global stores◦ Focus on establishing more long-term government and healthcare

contracts to ensure sales◦ Integrate Office Depot and Office Max loyalty programs

Organizational Structure

Executive Team


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Roland C. Smith

President North America - John

Kenning

Steve Schmit – President

International

Executive CFO and Vice Pres – Steve

Hare

CPO – Michael Allison

CLO (legal) – Elisa Garcia

Strategy and Innovation Officer –

James Barr

President of North America


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◦ John Kenning◦ Diverse background in leading regional divisional◦ Mr. Kenning has more than 25 years of experience leading a

variety of types of teams at large enterprise companies◦ Championed Nortel during transitional period◦ OMX Legacy – balances against multiples ODPs on executive for

MOE culture

Strategy and Innovation Officer


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◦ James Barr◦ Diverse work experience at different types of companies◦ Successful in developing profitable e-commerce strategies◦ OMX Legacy – balances against multiple ODPs on executive for

MOE culture

Leadership Team


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Leadership Team

Executive Vice President of Retail

– Juan Guerrero

Contract Sales – Steve

Calkins

Ecommerce – Mike

Kirschner

Merchandising – Ron Lalla

Marketing – Tim Rea

Supply Chain – Larry Hartley

Real Estate – Rob Koch

Global Chief Information

Officer – Todd Hale

Integration – Deb

O’Connor

Branding

• Revitalize company

• Customers: Not just a one-time purchase

• Sense of unity for employees/executives


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FinancingDebt to Equity Ratio Return on Equity

94% 16.5%

Finance $200 Million with Equity

Projected Income Statement


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Projected Balance Sheet

Are the Projections Realistic?• Synergies Projections:• Assuming synergies occurring internationally• Realistic time frame• Huge overlap in contract and retail business’ in North America• Same customer base, distribution channels and supplier types• Similar product, support and sales functions• CEO used closing stores and combining stores in past to reduce costs• Both increasing focus on e-commerce platform• Both use media, catalogue and insert advertising• Ability to eliminate redundancies, standardize processes and harmonize

products


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Are the Projections Realistic?• Sales Projections:• Weakened demand for office supplies and technology sales in commercial

segment and projected to keep declining• Both not doing well internationally

• Trouble with execution and economic environment abroad • Staples might take advantage of disruption occurring while merging

companies and steal more market share • High possibility of losing more competition to Amazon and technological

substitutions• Sales projections likely overstated


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Potential Issues with Merger Integration

◦ Behaves like two separate entities ◦ No clear understanding of integration plan ◦ Job losses◦ Potential backlash from Union ◦ Uneven dividend payment ◦ Market share threat ◦ Over-reliance on few suppliers ◦ Risk of unsuccessful online platform


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How to Mitigate Merger Integration Issues

◦ Competitive Edge ◦ Compete with online platforms Use Loyalty Program Integration

◦ Behaves like two separate entities ◦ No clear understanding of integration plan ◦ Job losses◦ Potential backlash from union ◦ Uneven dividend payment ◦ Market share threat ◦ Over-reliance on few suppliers ◦ Risk of unsuccessful online platform


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Thank you for your time.CLOSING REMARKS

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