By Dhanya Skariachan
NEW YORK, Nov 5 (Reuters) - Office Depot Inc onTuesday closed its deal to buy smaller rival OfficeMax Inc but both U.S. office retailers reported third-quarterresults that missed Wall Street's profit targets, underscoringthe challenges the combined company will face.
The retailers also named the two firms' chief executives asco-CEOs of the combined company while the search continues for apermanent replacement.
Last week, the retailers received regulatory approval fortheir $976 million deal. It aims at cutting costs, consolidatingstores, boosting clout with suppliers and improving theirchances of fighting market leader Staples Inc, as wellas online and discount rivals.
Uncertainty around the timing of the Federal TradeCommission approval made it challenging to find a new CEO by thetime the deal closed, the committee in charge of the searchsaid. But it expects to complete the process in the "nearfuture."
Janney Capital Markets analyst David Strasser had expectedthe combined company to name a new CEO today, but did not readtoo much into the company not doing so.
"These things don't happen based on a schedule of office.They happen based on schedules of the people involved," Strassersaid.
Despite the lackluster report cards from the companies dueprimarily to weak sales, he said the combined entity "isultimately a better company," citing a stronger balance sheet.The deal is also good for the industry as it will take outexcess capacity, Strasser said.
Neil Austrian, chairman and CEO of Office Depot, and RaviSaligram, president and CEO of OfficeMax, will serve as co-CEOsin the meantime.
The combined company will use the name "Office Depot, Inc"and will trade on the New York Stock Exchange under the symbolODP. It will continue to operate from both Boca Raton, Florida,and Naperville, Illinois, until a new CEO is on board and afinal decision on a headquarters location is made.
Office supply stores are fighting a battle for relevance,with shoppers increasingly buying their paper, toner andtechnology online from Amazon.com Inc, drugstores ormass merchants. Analysts covering office supply stores have longcalled for consolidation in what they see as a cluttered sectorwhose sales crumbled during the last recession.
The combined company would have had revenue of about $17billion for the 12 months ended Sept. 28. It expects to incurabout $200 million in one-time operating costs this year, and upto an additional $400 million in integration costs and $200million to $250 million in capital spending over the next threeyears.
By the end of the third year following the close of themerger, it expects cost savings in the upper half of thepreviously estimated $400 million to $600 million range.
OfficeMax directors Joseph DePinto and William Montgoris,and five Office Depot directors, including Kathleen Mason andJustin Bateman, have decided not to seek appointment to thecombined company's board.
OfficeMax's third-quarter net income fell to $30.4 million,or 34 cents a share, from $433.0 million, or $4.92 a share, ayear earlier. Excluding store closure charges, merger-relatedcosts and a host of items, OfficeMax earned 15 cents a share,falling short of analysts' average estimate of 22 cents a share,according to Thomson Reuters I/B/E/S.
Office Depot's net income, after preferred stock dividends,was $133 million, or 41 cents a share in the third quarter,compared with a net loss on that basis of $70 million, or 25cents a share, a year earlier. Excluding items, it earned 2cents a share, missing the estimate of 6 cents a share.
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