Staples Increases its Offer to EUR 8.00 per Share

As expected, Staples has moved forward with their intentions to acquire CE. The offer has been increased to EUR 8.00 per share and the offer memorandum has been submitted to the AFM for approval. Details can be read in the news release issued by Staples. In my opinion a couple of observations can be made after reading this news release.

First of all I can't help but have respect for the way Ron Sargent is looking after his own shareholders, which is in line with the way Staples has been managed for quite a while. He understand he is in a very good position, and he is certainly not willing to pay more for CE than is required.

I find it interesting and sensible that Staples has already had discussions with Dutch trade unions. At this stage of the process they must feel it is important to convince other stakeholders of the good intentions of their offer. When trade unions have no objections to the acquisition, it will obviously make it much harder to justify the issue of preference shares to protect against the acquisition by Staples. I believe the risk of this happening was already small, but to pay attention to other stakeholders at this stage makes good sense.

With a minimum required acceptance of 75% of CE shareholders, Staples makes sure that they can control the company, while also allowing for the risk that some shareholders, including some major ones, may elect not to accept the offer. When these shareholders find out that more than 75% has accepted the offer, they will most likely be able to change their minds in a post-acceptance period.

With respect to the value of the offer, I do see some risk. It is very clear that Staples wants this acquisition to take place, and shareholders may see this as an opportunity to improve their bargaining position. The offer of EUR 8.00 per share is at the bottom end of the range that I believed was required to make the acquisition successful. With this offer shareholders may feel encouraged to try to squeeze more out of the deal, which would mean that more time will pass, and possibly a reluctant increase of another EUR 0.50 will be realised.

I am very curious about the length of the acceptance period. If this period is short, Staples may have already anticipated that a last gesture is required. By setting the increased offer low, CE shareholders will realize that there may be something, but not much.

If the acceptance period is long, and closer to the maximum of 10 weeks, I believe this could well be the final offer. CE shareholders than face the risk of an uncertain stand alone future, with a very likely significant price decrease of the shares following the collapse of the deal. As Ron Sargent stated in the press release: "We are offering certain cash value versus the considerable uncertainties of management's long range guidance."

It will be interesting to observe how much opposition there will be for this offer by current shareholders, and what the reaction of CE management will be. Maybe this is the time for CE management to add some value. We will find out soon...