Negotiations broke down between Office Depot board members and the activist shareholder trying to unseat four directors hours before what could be the company’s final annual shareholders meeting.
Board directors selected Wednesday will usher in a new company, if Boca Raton-headquartered Office Depot (NYSE: ODP, $4.24) and OfficeMax (NYSE: OMX, $10.94) are approved to merge by federal regulators. Both groups of shareholders overwhelmingly approved the plan in July, which should make the companies more able to compete with industry leader Staples and online suppliers such as Amazon. A joint company is anticipated to have $18 billion in annual sales, which still falls short of Staples.
Office Depot’s largest common shareholder Starboard Value has challenged the current board, putting forth a list of four nominees and urging fellow stockholders to oust four sitting members. All 10 current board directors are up for a vote, so the New York hedge fund is going for a minor position on the board.
Two proxy advisory firms, ISS Proxy Advisory Services and Glass, Lewis & Co., mostly supported Starboard’s ballot. Another, Egan-Jones Proxy Services, supported Office Depot’s ballot with the compromise it offered last week of adding three Starboard Value nominees to an enlarged board, if the two directors on the CEO selection committee were re-elected.
Office Depot leaders say it would be disruptive at this stage in the merger to lose those CEO selection committee members, who are choosing a CEO to run the future joint company.
Office Depot CEO and board Chairman Neil Austrian said the Boca Raton-headquartered office supply chain made an “attractive offer” over the weekend, but Starboard Value rejected it. He said Starboard put its own interests above those of other shareholders.
The company offered to have two board members resign and add three Starboard Value nominees to the board, including hedge fund CEO Jeffrey C. Smith. Boca Raton resident Joseph Vassalluzzo, who is a former Staples executive, would be invited to join the CEO selection committee. Ultimately, Smith and Vassalluzzo would be rolled over to the joint Office Depot-OfficeMax board.
The company acknowledged that this “good-faith compromise,” as a Tuesday news release called it, was made after “hearing from its shareholders that they were supportive of adding new perspectives to the company’s board.”
Starboard Value, in a news release issued later Tuesday, said Office Depot’s assertions about what was supposed to be confidential were “misleading.”
Smith said Starboard Value tried to “work constructively” for months with Office Depot and only got concessions at the last minute and under pressure from shareholders and proxy advisory firms. Starboard owns nearly 15 percent of the company’s common stock, and the company’s board passed a poison pill last year to stop its purchases.
The offer Office Depot made also blocked Starboard Value from nominating directors until 2015 and declined to renominate the Starboard representatives to the joint board, according to the news release.
Starboard said it opposed the agreement because of the caveats, and that the board should remain at 10, and not be enlarged to save current board members while adding the hedge fund’s nominees.
“Unfortunately, they have painted a highly misleading, self-serving picture of the settlement discussions that took place to try to make shareholders believe we are being unreasonable,” Smith said.
Voting shareholders determine Wednesday who to follow into the future.
Under fire from Starboard Value
Current opposed board members:
Starboard replacement nominees:
Jeffrey C. Smith