Staples 2015 Annual Report Download - page 156

APPENDIX C
C-39 STAPLES Form 10-K
STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
NOTE R — PROPOSED ACQUISITION OF OFFICE DEPOT
On February 4, 2015, Staples announced that it had signed a
definitive agreement to acquire Office Depot, a global supplier
of office products, services and solutions for the workplace.
Under the terms of the agreement, Office Depot shareholders
will receive, for each Office Depot share, $7.25 in cash
and 0.2188 of a share in Staples stock at the closing.
On December 7, 2015, the U.S. Federal Trade Commission
and Canadian Commissioner of Competition each filed lawsuits
against the Company and Office Depot, seeking to block the
proposed merger and prevent the acquisition from closing. The
Company intends to vigorously defend against the lawsuits,
and a decision in the U.S. federal court case is expected by
May 10, 2016. On February 2, 2016, each of the Company
and Office Depot agreed to waive, until May 16, 2016, its
respective rights to terminate the definitive agreement due to a
failure to complete the merger by February 4, 2016 or a legal
restraint under antitrust laws. The Company would be required
to pay Office Depot a termination fee of $250 million under
certain circumstances, including if the definitive agreement is
terminated as a result of the antitrust closing conditions not
being satisfied on or before May 16, 2016.
On February 10, 2016, the Company announced that it had
received approval from European Union regulatory authorities
to acquire Office Depot, on the condition that Staples divest
Office Depot’s European contract business and all of Office
Depot’s operations in Sweden. The Company intends to meet
these conditions, and to also divest of Office Depot’s retail,
catalog and online operations in Europe. The divestitures are
subject to the closing of the acquisition. The Company has
also received regulatory clearances in Australia, New Zealand
and China.
On February 16, 2016, Staples and Office Depot announced
they had entered into an agreement to sell customer
contracts representing more than $550 million of revenue
and related assets to Essendant Inc., for a purchase price
of approximately $22.5 million. The revenue related to the
divested contracts comes primarily from large corporate
customers. The divestiture is subject to the closing of
the Office Depot acquisition, as well as other customary
closing conditions.
In 2015 the Company incurred expenses of $53 million in
connection with the planned transaction, primarily related to
professional services associated with obtaining regulatory
clearances. These amounts are included in Selling,
general and administrative expense in the consolidated
statements of income. The Company also incurred fees
related to commitments for financing for the transaction, as
discussed below.
Transaction Financing
In connection with the proposed acquisition, on
February 4, 2015 the Company announced it had obtained
financing commitments from Bank of America Merrill Lynch
and Barclays Bank, PLC (“Barclays”) for a 5-year $3 billion
asset-based revolving credit facility and a 6-year $2.75 billion
term loan. The original commitments were scheduled to expire
on February 4, 2016. During 2015 the Company incurred
commitment and other related fees of $94 million related to the
term loan, which have been classified as interest expense in the
consolidated statements of income. Of this amount, $2 million
was paid in 2015, $68 million was paid on February 2, 2016,
and $24 million is payable upon closing or termination of the
proposed acquisition.
On February 2, 2016, the Company entered into (i) the
definitive term loan agreement with the syndicate of lenders,
and Barclays as administrative agent and collateral agent, for a
principal amount of $2.5 billion, and (ii) an agreement pursuant
to which Bank of America Merrill Lynch and Barclays agreed
to extend their existing financing commitments for the 5-year
$3 billion asset-based revolving credit facility.
The net proceeds from the $2.5 billion term loan were
deposited into escrow accounts. The term loan was issued
with an original issue discount equal to 1.0% of the par
value of the loan. The loan proceeds will be released from
escrow to the Company if certain conditions are satisfied,
including consummation of the merger, by September 10,
2016 (which may be extended to November 10, 2016 under
certain antitrust-related circumstances). If the proceeds are
released from escrow, the term loan will mature on the earlier
of (1) February 2, 2022, and (2) the date that is 91 days prior
to the final maturity date then in effect for Staples’ currently-
outstanding 2.75% senior notes due January 2018 if, at such
time, the principal amount of outstanding senior notes is
$300 million or greater. If the merger is not consummated or
if the conditions are not otherwise met, the par value of the
term loan and all accrued interest will become immediately due
and payable.
Borrowings under the term loan bear interest at a rate per
annum equal to, at the Company’s option, either (1) an
adjusted London interbank offered (“LIBO”) rate with a floor of
0.75% (the “Adjusted LIBO Rate”), plus an applicable margin
equal to 4.00%, or (2) a base rate determined by reference to
the highest of (a) the U.S. federal funds rate plus 0.50%, (b) the
“prime rate” last quoted in The Wall Street Journal, (c) the
Adjusted LIBO Rate for an interest period of one month, plus
1.00% and (d) 1.75%, in each case plus an applicable margin
equal to 3.00%. As of February 2, 2016, the outstanding loan
balance under the term loan agreement bore an initial interest
rate of 4.75% per year, which is subject to adjustment from
time to time as provided for in the term loan agreement. If
the proceeds are released from escrow, the term loan will be
secured by a first priority security interest in substantially all
of the assets of the Company, other than the ABL Collateral
(defined below), and a second priority security interest in the
ABL Collateral.