Staples 2014 Annual Report Download - page 102

FORWARD-LOOKING STATEMENTS
8 STAPLES Form 10-K
difficulties with the integration process, the anticipated benefits
of the merger may not be realized fully or at all, or may take
longer to realize than expected. The actual cost savings of the
merger could be less than anticipated.
We will incur significant indebtedness in connection
with the merger, which could reduce our flexibility to
operate our business and increase our interest expense.
In connection with the planned acquisition, we have obtained
financing commitments from Bank of America, N.A. and Merrill,
Lynch, Pierce, Fenner & Smith Incorporated (“Bank of America
Merrill Lynch”) and Barclays Bank PLC (“Barclays”) for a 5-year
$3 billion asset-based revolving credit facility (the “ABL Facility”)
and for a 6-year $2.75 billion term loan (the “Term Loan”). This
indebtedness could have the effect, among other things, of
reducing our flexibility to respond to changing business and
economic conditions and increasing interest expense. We will
also incur various costs and expenses associated with our
indebtedness. The amount of cash required to pay interest
on our increased indebtedness levels following completion of
the merger, and thus the demands on our cash resources,
will be greater than the amount of cash flows required
to service our indebtedness prior to the transaction. The
increased levels of indebtedness following completion of the
merger could also reduce funds available for working capital,
capital expenditures, acquisitions and other general corporate
purposes and may create competitive disadvantages relative
to other companies with lower debt levels. If we do not achieve
the expected benefits and cost savings from the merger, or
if the financial performance of the combined company does
not meet current expectations, then our ability to service our
indebtedness may be adversely impacted.
Certain indebtedness to be incurred in connection with the
merger may bear interest at variable interest rates. If interest
rates increase, variable rate debt will create higher debt service
requirements, which could adversely affect our cash flows.
In addition, our credit ratings affect the cost and availability
of future borrowings and, accordingly, our cost of capital.
Our ratings reflect each rating organization’s opinion of our
financial strength, operating performance and ability to meet
our debt obligations. In connection with the debt financing,
it is anticipated that we will seek ratings of its indebtedness
from one or more nationally recognized statistical rating
organizations. There can be no assurance that we will achieve
a particular rating or maintain a particular rating in the future.
Moreover, we may be required to raise substantial additional
financing to fund working capital, capital expenditures,
acquisitions or other general corporate requirements. Our
ability to arrange additional financing or refinancing will
depend on, among other factors, our financial position and
performance, as well as prevailing market conditions and other
factors beyond our control. There can be no assurance that
we will be able to obtain additional financing or refinancing on
terms acceptable to us or at all.
The agreements that will govern the indebtedness to
be incurred in connection with the merger may contain
various covenants that impose restrictions that may
affect our ability to operate our businesses.
The agreements that will govern the ABL Facility and the Term
Loan to be incurred in connection with the merger may contain
various affirmative and negative covenants that may, subject
to certain significant exceptions, restrict our ability to, among
other things, have liens on our property, change the nature of
our business, transact business with affiliates and/or merge
or consolidate with any other person or sell or convey certain
assets to any one person or pay dividends. In addition, some
of the agreements that govern the debt financing may contain
financial covenants that will require us to maintain certain
financial ratios. Our ability to comply with these provisions
may be affected by events beyond our control. Failure to
comply with these covenants could result in an event of
default, which, if not cured or waived, could accelerate our
repayment obligations. In addition, we expect that the terms of
the definitive agreements that will govern the ABL Facility and
the Term Loan will restrict us from paying dividends in certain
circumstances and otherwise in an amount in excess of $0.15
per share per quarter, subject to certain exceptions.
Sales of shares of our common stock before and after
the completion of the proposed Office Depot merger
may cause the market price of our common stock to fall.
Based on the number of outstanding shares of our common
stock and Office Depot common stock as of February 2, 2015,
we would issue approximately 124.4 million shares of our
common stock in connection with the proposed Office Depot
merger. The anticipated dilutive effect of the issuance of these
new shares could negatively impact the market price for our
common stock.
In addition, Office Depot stockholders may decide not to hold
the shares of our common stock they receive in the proposed
merger. Other Office Depot stockholders, such as funds with
limitations on the amount of stock they are permitted to hold
in individual issuers, may be required to sell the shares of our
common stock that they receive in the proposed merger. Such
sales of our common stock could result in higher than average
trading volume following the closing of the transaction and
may cause the market price for our common stock to decline.
Several lawsuits have been filed against us and Office
Depot and its directors challenging the proposed merger,
and an adverse ruling in such lawsuits may prevent
the proposed merger from becoming effective or from
becoming effective within the expected timeframe.
We, Office Depot and its directors are named as defendants
in several putative class action lawsuits brought by purported
Office Depot stockholders challenging the proposed merger,
seeking, among other things, to enjoin consummation of the
proposed merger. One of the conditions to the completion of
the proposed merger is that no injunction by any court or other
tribunal of competent jurisdiction will be in effect that prohibits
or makes illegal the consummation of the proposed merger.
As such, if any of the plaintiffs are successful in obtaining
an injunction prohibiting the consummation of the proposed
merger, then such injunction may prevent the proposed
merger from becoming effective or from becoming effective
within the expected timeframe.