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 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

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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