Corporate Express Rejects Staples` Acquisition Bid

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Dutch wholesaler Corporate Express has rejected Staples' $3.7 billion bid, saying it undervalues the company.

 By Alexandra Hudson and Jessica Hall

AMSTERDAM/PHILADELPHIA (Reuters) - Office supply retailer Staples Inc made an unsolicited 2.5 billion euro ($3.7 billion) bid for Corporate Express on Tuesday after unsuccessful attempts to hold friendly merger talks with the Dutch office supply company.

Corporate Express rejected the offer, saying it undervalued the company.

A deal, which has been rumored for months, would allow Staples to cut costs and expand its market share and product line in the United States, where Corporate Express generates around 50 percent of its revenue, analysts said.

"Strategically, the acquisition would provide Staples with (a) significant increase in scale in North America, as well as a new contract platform in the (European Union), Australia and New Zealand markets," said Colin McGranahan, an analyst with Sanford Bernstein.

Hedge funds and investors have pressed Corporate Express, one of the world's largest office products wholesalers, to seek a buyer or break apart the company due to problems with shrinking sales and margins in the United States, its key market.

Yet the company recently added new management and said earlier this month that it had reversed slumping U.S. sales in the last quarter of 2007. It also reiterated its desire to continue as an independent firm.

Earlier this month, Corporate Express denied it was in talks with Staples.

In a letter to Corporate Express, Staples wrote: "Over the last several months, we have made repeated attempts to engage in discussions with you concerning a business combination, and we have been disappointed that you have not been willing to do so.

"We believe that a business combination with Staples at this time would result in superior benefits for Corporate Express' stakeholders," the letter said.

Staples' cash offer of 7.25 euros per share values Corporate Express at 2.5 billion euros. Corporate Express shares surged 39 percent to 7.55 euros, surpassing the Staples offer. Staples shares gained 16 cents to $22.20 in early afternoon trading on Nasdaq.

"From a strategic point of view they are a good fit, but (the takeover offer) significantly undervalues the company. They will probably have to raise to about 8 euros (per share)," said Fortis analyst Maarten Bakker.

Analyst Johan van den Hooven at Theodoor Glissen, who has a per share price target of 8 euros for Corporate Express, said the offer price was a good start but he expected Staples would need to raise it once or twice before the Dutch firm accepted it.

Van den Hooven did not rule out a counter bid from U.S. office supplier Office Max or Office Depot, but said it was unlikely.

Instead, a deal between Staples and Corporate Express could heighten the need for Office Max and Office Depot to merge, according to Credit Suisse analyst Gary Balter.

In addition to wholesaling office supplies, furniture and software, Corporate Express provides printing, graphics and related parts and maintenance. The company has no retail operations, and a combination with Staples would face few regulatory hurdles, analysts said.

Staples said its offer represented a premium of 33 percent to Corporate Express' closing share price on February 18. Staples said it had a letter of commitment for financing from Lehman Brothers.

"A business combination with us now creates certain cash value for Corporate Express' shareholders and eliminates the risks associated with both the achievement of your plan and today's volatile business and market environment," Staples said.

Staples rival Office Depot and office supplies maker Newell Rubbermaid Inc have warned of weak economic conditions in the United States.

Corporate Express has traded at a discount to Staples, at 10 times projected 2008 earnings versus a price-earnings ratio of 15 for Staples and 10 for number two Office Depot Inc.

"Given significant overlap in North America as well as (Staples') ability to operate (Corporate Express') international contract platform much better, we could envision significant improvement in (Corporate Express) margins and material synergies," Bernstein's McGranahan said.

Corporate Express is the latest in a series of Dutch companies to attract take-over bids, some after pressure from activist investors. Few government barriers to takeovers and a liberal Dutch corporate governance code have made them desirable targets.

Among companies poised to disappear from the Dutch corporate landscape since the start of 2007 are ABN AMRO, electrical goods supplier Hagemeyer and staffing company Vedior.

They are being acquired by a group led by Royal Bank of Scotland, Rexel and Randstad respectively.

(Reporting by Alexandra Hudson in Amsterdam and Jessica Hall in Philadelphia; Editing by David Cowell and Gunna Dickson)

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