Office Depot and OfficeMax announced Wednesday a merger to create an office-supplies retail giant better designed for an increasingly competitive retail landscape.
The companies described the agreement in a joint statement as a "merger of equals." OfficeMax shareholders will receive 2.69 Office Depot shares for each share of their common stock.
Based on Tuesday's closing price of Office Depot, the deal values OfficeMax at $1.17 billion ($13.50 per share). Office Depot on Wednesday had a market capitalization of $1.2 billion.
The statement confirmed the merger which had been prematurely announced earlier in the day.
The merger comes as both companies face growing competitive pressure not only from peers like Staples, but from Internet stores like Amazon and big-box retailers, including Wal-Mart and Target.
"In the past decade, with the growth of the Internet, our industry has changed dramatically," Office Depot chief executive Neil Austrian said.
"Combining our two companies will enhance our ability to serve customers around the world, offer new opportunities for our employees, make us a more attractive partner to our vendors and increase shareholder value."
Each company will have an equal number of members on the board of directors of the combined company, which would have had $18 billion in revenues at the end of last year.
The companies said the merger would result in $400-$600 million in annual cost synergies. Other benefits include greater cash firepower. The combined company would have more than $1 billion in cash on hand and more than $1 billion through available credit facilities.
The merger was unanimously approved by both boards and was expected to close by the end of 2013, subject to shareholder and regulatory approvals, they said.
In 1997, Staples attempted to acquire Office Depot, but the transaction was blocked by the Federal Trade Commission due to concerns about lack of competition.
But OfficeMax chief executive Ravi Saligram said today's environment was a "totally different landscape" compared with 1997, when Amazon was a minnow and Walmart was a small player in office supplies.
Office Depot has 1,929 stores in 59 countries and employs around 38,000 people.
OfficeMax has more than 900 stores and 29,000 employees.
Bank of America Merrill Lynch predicted in a note that the merger would result in "a significant acceleration in store closures going forward."
But even with the closures, capacity remains a concern "given the increasing commoditization of office products and growing irrelevancy of the office-specific retail format," it said.
The new company's leadership will be determined by a selection committee made up of an equal number of independent board members from each company. The incumbent chief executives, as well as external candidates, will be considered, the statement said.
The combined company's name, marketing brands and corporate headquarters location is expected to be determined after the CEO is appointed, it said.
Wednesday's official announcement of the merger was preceded by a number of US media reports before the markets opened that said a $1.2 billion deal had been struck. However, the reports appeared to have been based on an Office Depot news release that was later removed from the company's website.
Office Depot shares fell 16.7 percent while OfficeMax sank 7.0 percent.
Separately, both companies reported fourth-quarter earnings that missed analyst expectations.
Office Depot posted a net loss of $17.5 million, or six cents per share, compared with year-ago profit of $12.3 million.
OfficeMax reported a net loss of $33.9 million, or 39 cents per share, compared with $2.9 million profit in the 2011 fourth quarter.