Mail Boxes Etc. to Be Acquired

U.S. Office Products has agreed to acquire San Diego-based Mail Boxes Etc., the largest nonfood franchiser in the nation, in a $267-million stock swap designed to give the acquiring company access to hundreds of thousands of small business customers.

The deal, which would combine one of the nation’s largest direct sellers of office supplies with a fast-growing chain of mail, packaging and small business centers, was announced as the government places increased scrutiny on the rapidly consolidating office supply industry.

The proposed $4-billion Staples-Office Depot merger is now under review for antitrust implications by a federal judge in Washington, D.C., at the request of the Federal Trade Commission.

U.S. Office Products and Mail Boxes Etc. executives say they expect no government intervention, however, because the merger would have little competitive impact on the office supply industry.

“There is no antitrust, no overlap concerns. This is a new incremental business for us, all new customers. We have never competed with Mail Boxes,” U.S. Office Products Chief Financial Officer Don Platt said Thursday.

U.S. Office Products has virtually no retail presence but sells a wide range of office products and services to mid-size companies, schools and institutions through direct distribution and catalog sales. The company has the largest school-supply business in the United States, Chairman Jonathan Ladecky said Thursday.

Although Mail Boxes Etc.’s 3,400 franchisees would be under no obligation to buy office products from the new parent, both companies expect them to take advantage of lower prices. Mail Boxes Etc. franchisees currently have no central purchasing agreement with any supplier, said Susan Lacerra, vice president and senior analyst at Robertson Stephens & Co. of San Franciso.

Washington, D.C.-based U.S. Office Products has grown rapidly through 167 acquisitions of small office suppliers over the last two years. Revenue for the fiscal year ended April 30 will be about $2.2 billion, up sharply from $702 million the previous year, Platt said.

Mail Boxes Etc., founded in 1982, has grown to 3,400 franchised stores in 50 countries, helping popularize the idea of non-post office mail reception centers. The company rents mail boxes to about 400,000 customers. About 2,850 of its outlets are in the United States.

Mail Boxes Etc. added 320 franchises in 1996, its biggest growth spurt in years. It generates revenue from franchise fees, royalties and equipment sales.

Recently, under the leadership of new Chief Executive James Amos, Mail Boxes Etc. added to its mail-handling and packaging services.

Many stores now have Banc One ATMs and offer Internet access through an agreement with Microsoft Corp. Mail Boxes Etc. would retain its brand name as a wholly owned subsidiary of U.S. Office Products after the merger.

“It’s an interesting deal for U.S. Office Products because it brings a huge customer base to the table, 400,000 customers a day coming through the doors that can be further leveraged,” said Gregory W. Cappelli, vice president of Credit Suisse First Boston in Chicago.

The merger proposal calls for U.S. Office Products to swap one of its shares for each of Mail Boxes Etc.’s 11.3 million outstanding shares. The final value would be determined by the 20-day average closing price for U.S. Office Products shares before the deal’s close in August.

But based on U.S. Office Products’ closing stock price of $23.625 on Thursday, off 87.5 cents for the day in Nasdaq trading, the deal would be worth $267 million. The transaction could be canceled by Mail Boxes Etc.’s board if U.S. Office Products’ shares trade at an average below $23.

Mail Boxes Etc. shares closed at $22.625, up $3 on Thursday, also on Nasdaq, a 16% premium over Wednesday’s closing price.

Mail Boxes Etc. said it expects no layoffs among its 250 San Diego-based employees, although what founder and Vice Chairman Anthony Desio’s role in the merged company would be was not clear Thursday. Mail Boxes Etc. expects to report revenue of about $65 million for the recently ended fiscal year, up from $59.1 million last year.