Benzinga | Mar 15, 2021 08:32AM EDT

ODP Rejects Proposal By Sycamore Partners To Sell Various ODP Assets to Staples; ODP Says Urges Sycamore To Pursue Alternative Of Combining ODP And Staples Retail Businesses

Proposal Contemplates Acquisition of B2B Assets That Are Part of ODP's Continuing B2B Growth Strategy

Proposal Lacks Basic Material Terms, Including Purchase Price, and Any Commitment by Staples to Complete the Proposed Transaction

ODP Again Urges Sycamore to Pursue Alternative of Combining ODP and Staples Retail Businesses

The Board of Directors of The ODP Corporation ("ODP," or the "Company") (NASDAQ:ODP), a leading provider of business services, products and digital workplace technology solutions through an integrated B2B distribution platform, today responded to and rejected unanimously a proposal from USR Parent Inc., the Sycamore-affiliated owner of Staples ("Staples"), to acquire various ODP assets.

Staples' proposal was contained in a letter dated March 10, 2021, from Stefan Kaluzny, Managing Director of Sycamore Partners and a Member of the Board of Directors of USR Parent, Inc., and accompanied by a letter of intent (the "LOI") by which Staples proposed that the parties would announce the contemplated sale of various ODP assets to Staples and would commit to seek regulatory approval for such transaction.

The ODP Board carefully reviewed the letter and the LOI in consultation with its financial and legal advisors, and determined that ODP, in the best interest of its shareholders, cannot agree to the proposal. The Board noted in its response that Staples did not provide a valuation of the assets that Staples sought to acquire, which include certain B2B businesses of ODP. The Board further noted that the LOI, which contemplated a binding commitment to seek regulatory approval, also did not include any obligation on the part of Sycamore or Staples to proceed with the transaction, agree to a purchase price, or assume any related regulatory risk.

ODP reiterated that, as it has previously stated -- including in its letter to Staples dated January 19, 2021 -- the Company is open to combining its retail and consumer-facing ecommerce operations with Staples under the right set of circumstances and on mutually acceptable terms, including in the form of a joint venture or potential sale of such assets by ODP. ODP encouraged Staples once again to engage on the basis of that approach.

The full content of the ODP Board's letter dated March 15, 2021, as well as Staples' March 10 letter and accompanying LOI, are set forth below.

ODP Board Letter, dated March 15, 2021

March 15, 2021

Mr. Stefan Kaluzny

USR Parent Inc.

Sycamore Partners Management, L.P.

9 West 57th Street, 31st Floor

New York, New York 10019

Mr. Kaluzny,

The Board of Directors of The ODP Corporation ("ODP") received your letter dated March 10, 2021 (the "March 10 Letter") and the Non-Binding Letter of Intent (the "LOI") attached to it. Copies of your March 10 Letter and the LOI are enclosed. Your March 10 Letter is the first time we have heard from you since we were informed that Sycamore Partners and USR Parent, Inc. ("Staples") do not want to engage in substantive discussions until the regulatory process is completed.

The Board has carefully reviewed the March 10 Letter and the LOI in consultation with our financial and legal advisors, and has determined that ODP, in the best interest of its shareholders, cannot agree to such a proposal.

To summarize the terms of your proposal, the LOI provides that:

* ODP would sell to Staples at an unspecified price its retail and consumer-facing ecommerce operations, its B2B-related assets of Grand & Toy (its Canadian subsidiary which has no retail stores), the Federation companies (which have no retail stores), and all U.S. distribution centers, as well as ODP's global corporate headquarters;

* ODP would be obligated to submit the letter of intent to the U.S. Federal Trade Commission and the Canadian Competition Bureau as a basis for continuing the burdensome and expensive regulatory reviews initiated at Staples' request, and would be obligated for an indefinite period of time to use its efforts to obtain regulatory approval for this proposed transaction;

* ODP would be obligated to announce this proposed transaction, which contains no agreement on the purchase price for our assets or on any of the terms and conditions of the transition services agreement, intellectual property license agreement, or sales/leaseback agreements that you would require according to your LOI; and

* Staples would not be subject to any commitment with respect to a proposed purchase price or any other terms of this proposed transaction, but instead you would "expect to negotiate the purchase price" at a later time.

As is evident in this summary, you are proposing no valuation of the assets you wish to acquire, no timeframe for completing a transaction and no obligation on Sycamore or Staples to proceed with the transaction, agree to a purchase price, or take on any of the regulatory risk.

As ODP has previously stated, including in our letter to you dated January 19, 2021, we are open to combining our retail and consumer-facing ecommerce operations with Staples under the right set of circumstances and on mutually acceptable terms, including in the form of a joint venture or potential sale of such assets by ODP. This remains the case. ODP does not propose, however, that the Federated Companies or Grand & Toy, which are B2B businesses, or any of its U.S. distribution centers, which are part of ODP's B2B business strategy, would be included in any such sale or joint venture.

With respect to Grand & Toy specifically, as you are aware, the Canadian Competition Bureau has already informed both parties of its preliminary view that, although it has reached no firm conclusions, Grand & Toy customers and suppliers have raised serious concerns with the proposed transaction and no significant change to the competitive landscape appears to have occurred since the prior review of the proposed transaction in 2016 which would meaningfully mitigate those concerns.

Following receipt of your March 10 Letter, we contacted your advisors who informed us that you do not want to engage in discussions about any proposal other than what you set forth in the LOI. We once again urge you to instruct your financial and legal advisors to enter into a constructive dialogue so that we can provide both companies with the opportunity to share in the benefits, as well as the risks, of a potential combination of our retail and consumer-facing ecommerce operations while maximizing value for our respective shareholders. In order to be constructive, any such dialogue must include a discussion of valuation and other key proposed terms as well as the appropriate allocation of the regulatory risk.

In the meantime, we will continue to focus on building our B2B strategy and other growth initiatives.

Sincerely,

Joseph S. Vassalluzzo

Chairman of the Board of Directors of The ODP Corporation

Staples' Letter, dated March 10, 2021

USR Parent, Inc.

500 Staples Drive

Framingham, MA 01702

March 10, 2021

Board of Directors

The ODP Corporation

6600 North Military Trail

Boca Raton, FL 33496

Ladies and Gentlemen:

USR Parent, Inc., on behalf of itself and certain of its affiliates ("Staples"), is pleased to present this revised proposal to The ODP Corporation (together with its subsidiaries, "ODP" or the "Company") to acquire certain of the Company's assets as outlined in the Non-Binding Letter of Intent ("LOI") attached hereto. Capitalized terms used in this letter without definition shall have the meanings ascribed thereto in the LOI.

The attached LOI describes in detail the assets that Staples proposes to acquire from the Company, and we are prepared to immediately sign the LOI and pivot towards the Proposed Transaction described therein. We believe that moving forward on this basis offers the following benefits: (1) the simplified Proposed Transaction, whereby the Company would retain its core U.S. based B2B Contracts business, should expedite the review of the Proposed Transaction by the appropriate competition authorities; (2) the proposed public announcement of the parties' intent to pivot to the simplified Proposed Transaction will remove the ongoing uncertainty posed by Staples' previously announced plans to commence a tender offer for the Company's outstanding common stock; and (3) the proposed public announcement of the Company's plans to retain its U.S. based B2B Contracts business will eliminate the current uncertainty surrounding the fate of this business unit.

We would expect to negotiate the purchase price for the Acquired Assets once the parties make further progress to advance the requisite competition clearances for the Proposed Transaction with the Federal Trade Commission and Canadian Competition Bureau. In connection therewith, we would expect to provide you with separate purchase prices for each of the Company's U.S. corporate headquarters and the Company's Federation business unit and, in the event that the parties are unable to agree on mutually satisfactory purchase prices for the foregoing two assets, the Company may elect to exclude such assets from the Proposed Transaction.

Please contact me with any questions regarding our proposal.

Sincerely,

USR PARENT, INC.