Office Depot Inc. (ODP:US), the second- largest U.S. office-supply chain, is in talks to sell the remaining 50 percent of its Mexican unit to Grupo Gigante SAB, said people familiar with the situation.
Grupo Gigante, which already owns the other half of Office Depot de Mexico, is in discussions with local banks to get financing for the deal, said the people, who asked not to be named because the talks are private. The parties are considering other options and the talks may still fall apart, said one person.
Office Depot is pursuing the sale amid pressure from its top shareholder, Starboard Value LP, to improve earnings. Starboard disclosed a stake in Boca Raton, Florida-based Office Depot last September and said then that the chain should cut general expenses, lower advertising costs and move to smaller stores.
The retailer’s shares climbed as much as 8.2 percent following Bloomberg’s report. They advanced 2 percent to $4.59 at the close in New York.
Office Depot entered the joint venture in 1994, and the business has since expanded to more than 200 stores, according to regulatory filings. The stake in Office Depot de Mexico, which also operates in Colombia and Central America, may be valued at $700 million, the people said.
In the year through Sept. 29, the venture generated $860.8 million in revenue, and Office Depot’s share of earnings amounted to about $24 million. Brian Levine, a spokesman for Office Depot, declined to comment on the process. Jorge Hernandez Talamantes, an investor relations official with Gigante, said he didn’t have information about a pending deal with Office Depot and declined to comment further.
Starboard, based in New York, owned about 14.8 percent of Office Depot as of Dec. 31, according to data compiled by Bloomberg. In October, Office Depot’s board approved a shareholder rights plan that would entitle its investors to additional shares if one entity acquires 15 percent or more of the company’s stock.
The retailer, which has about 1,680 locations worldwide, has posted four straight years of shrinking sales (ODP:US). Office Depot, Staples Inc. and OfficeMax Inc. are facing more competition from online retailers such as Amazon.com Inc. while selling fewer traditional supplies as more workers use computers, tablets and smartphones.
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