Canadian M&A Perspectives Private and Public Mergers & Acquisitions | Private Equity

OfficeMax and Office Depot Merger of Equals – Who Will Sit Behind the CEO’s Desk?

A Difficult Governance Issue Deferred.

Posted in Public M&A, Strategy
Robert Hansen

One of the more interesting governance issues in any merger of equals transaction is determining which Chief Executive Officer will take the helm of the combined company.  OfficeMax and Office Depot announced the signing of a definitive merger agreement on February 20, 2013 under which the two companies agreed to combine in an all-stock merger of equals transaction. In most merger of equals transactions, the parties agree in advance on who will head up the combined company as CEO.  However, the parties in the OfficeMax and Office Depot merger deferred this decision to a Selection Committee.

The Selection Committee will be created and co-chaired by an independent director designated by Office Depot and an independent director designated by OfficeMax and will be comprised of equal numbers of other independent directors as the co-chairs mutually agree.  The Selection Committee’s mandate is to engage an independent search firm to identify and recommend CEO candidates with the terms of engagement and search criteria to be established by the Selection Committee.  The parties agreed that the Selection Committee will require the search firm to consider the current CEOs of OfficeMax and Office Depot as potential candidates.  Based on a majority vote, the Selection Committee will then make a recommendation to both boards (if the recommendation is made before closing) or to the Office Depot board (if the recommendation is made after closing).  If the recommended candidate is the current CEO of either OfficeMax or Office Depot, the appointment of that candidate to the CEO position will require the affirmative vote of two-thirds of the independent directors.  The appointment of any other candidate as CEO will only require the affirmative vote of a majority of the independent directors.  Generally speaking, if one party’s CEO is selected to serve as CEO of the combined entity, the other party will be entitled to select the chairperson and lead director of the combined entity.

It will be interesting to watch how this creative, and to our knowledge, unique approach unfolds. Perhaps it will serve as an incentive to management of both merger parties to achieve a successful integration.