Worcester Business Journal

Can going private save Staples? BY GRANT WELKER Worcester Business Journal News Editor S taples has tried merging with its biggest rival, has added workspaces to several of its stores and is taking a turn toward business-to-business sales. Nothing has worked quite yet to help the Framingham office retailer dig out of its troubles. Now, the company has gone private in a $6.9-billion sale in September, but will time away from the glare of share- holders and analysts poring through earnings reports help make the changes necessary to be on stable footing again? "The argument on its face is very compelling," said Mark Hulbert, the founder of what became the analysis firm MarketWatch, where he is a senior columnist. "I can see why shareholders would [agree to the private sale]. It's, 'Let's take our money and run.'" Whether private equity firms are more likely to turn a company around compared to if it had remained public isn't so easy to determine, Hulbert said. Privatization's spotty record A study of more than 300 leveraged buyouts between 1995 and 2007 found no evidence of operating improvements after a buyout, which was reported in the Journal of Financial Economics in 2014. The report did not single out win- ners or losers among those taken pri- vate, but appears to be a rare detailed accounting of private sales by defini- February 2015: Announces with Office Depot intention for a $6.3-billion merger Janurary 2016: Cuts hundreds of corporate jobs February 2016: Sells off $550 million in Staples privatization, a timeline Source: WBJ reports, Staples contracts in an effort to mitigate monopoly concerns March 2016: Rebrands business-to- business division as Staples Business Advantage May 2016: Staples and Office Depot call off the merger June 2016: CEO Ron Sargent, Staples' leader for 27 years, steps down. He is replaced by Shira Goodman, a Staples veteran of 23 years. September 2016: Staples announces collaboration with Workbar for 2,500- to 3,500 square-foot workspaces in Danvers, Norwood and Brighton stores. December 2016: Sells its controlling shares of European division at a loss of $117 million April 2017: Sells its Australian and New Zealand businesses June 2017: Announces proposal to sell to Sycamore Partners for $6.9 billion September 2017: Sale to Sycamore closes. tion difficult to study because finan- cials are not made public. The findings fly in the face of the idea going private helps a company improve its operating performance, said the authors of the study, three business professors. Staples leadership called the sale to Sycamore a good fit to benefit both customers and employees. "The Sycamore Partners' team shares Staples' entrepreneurial spirit and long- term vision," said Staples CEO and President Shira Goodman in a statement when the sale agreement was announced in late June. "This transaction will enable us to drive greater value for our cus- tomers and immense opportunity for our business." Staples sold for a premium of about 20 percent of share prices at the time, which were about $10, or half of its peak in 2010. The company did not give additional comment for this story. Sycamore's faith in retailers Staples has a lot riding on a new future under Sycamore Partners, a New York City private equity firm managing more than $3.5 billion in capital. The six-year-old firm has taken what looks to be a contrarian bet on the future of retail, buying and selling a range of companies. Sycamore bought Talbots for $369 million in 2012 after the struggling Hingham-based women's retailer cut headquarters jobs and ended a fight against Sycamore's takeover attempt. Sycamore bought the 600-store mall regular Hot Topic in 2013 for about $600 million. The firm paid a 30-per- cent mark-up above shares at the time for a company that, unlike some others that it has bought, was doing well at the time of the sale. Sycamore sold lux- ury shoe line Stuart Weitzman to Coach in 2015 for $574 million, and also tried buying clothing lines Aeropostale, Express and Chico's. In 2015, Sycamore bought North Carolina apparel chain Belk for $3 bil- lion. A year later, a retail expert told The Charlotte Observer the Belk family that ran the chain for more than a cen- tury was smart to sell when it did. Belk operates nearly 300 stores, slightly fewer than a decade ago, but its finan- cial performance isn't known. Sycamore was founded and is run by Stefan Kaluzny, a graduate of Phillips Academy in Andover. The firm has Shira Goodman, CEO and president, Staples Staples has closed about one-ffith of its stores since 2011, and will shutter 70 more this year. P H O T O / F L I C K R U S E R M I K E M O Z A R T Framingham office supply chain Staples is now a private company, with hopes of turning around years of declining sales. Staples losses Source: Staples 0 $5B $10B $15B $20B -$500M -$250M 0 $250M $500M $750M SALES (In billions) NET INCOME (In millions) -$459M $18.2B 16 Worcester Business Journal | October 16, 2017 | wbjournal.com F OC U S M E T R O W E S T

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