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Office Depot to buy CompuCom Systems for $1B

Office Depot Inc. announced Oct. 3 that it has agreed to acquire IT company CompuCom Systems Inc. for about $1 billion, calling the deal the first step in its transition from a traditional office supply retailer into a platform for business services and technology products.

The retailer is buying the target from Thomas H. Lee Partners with new debt and the issuance of about 45 million shares of its common stock. The private equity firm will own a stake of around 8% in Office Depot following the transaction, which is expected to close before year's end.

CompuCom, founded in 1987, provides remote and onsite IT services to 5.1 million users at businesses and employs about 6,000 licensed technicians, the largest workforce of its kind in North America, according to the announcement.

Florida-based Office Depot expects the CompuCom deal to add about $1.1 billion in revenue and more than $40 million in cost savings within two years.

Goldman Sachs & Co. LLC is Office Depot's financial adviser in the CompuCom transaction, with Wachtell, Lipton, Rosen & Katz serving as legal counsel. Weil Gotshal & Manges LLP is serving as legal counsel to CompuCom.

In addition, the company announced a cut to its full-year forecast, with adjusted operating income expected to be between $400 million and $425 million, compared to the previous estimate of $500 million.

Office Depot attributed the revision to the impact of the recent hurricanes, lower store traffic and sales for back-to-school shopping, a temporary rise in supply chain costs stemming from a consolidation of vendors and warehouses, and increased costs in developing the company's new strategic transition.

The company also provided preliminary third-quarter numbers. It expects to report adjusted operating income of between $125 million and $135 million for the quarter, with total sales down by 7% to 8%.