BC Partners invests $350 million in Office Depot

SAN FRANCISCO (Reuters) - Office Depot Inc ODP.N, which has been trying to raise money in the wake of slumping sales, said on Tuesday it received a $350 million investment from BC Partners, which could give the London-based private equity firm a stake of roughly 20 percent in the retailer.

An Office Depot store is pictured in Boulder, Colorado December 10, 2008. REUTERS/Rick Wilking

Private equity firms typically seek to take control of firms they invest in, but as leverage has been scarce, minority stake deals have become increasingly common. Boston's Bain Capital agreed on Monday to buy a stake of up to 23 percent in China's GOME Electrical Appliances Holdings 0493.HK.

Office Depot marks the first U.S.-based investment BC Partners has made.

The firm, which has investments in companies such as London estate agent Foxtons and MiGros, a supermarket chain based in Turkey, bulked up its U.S. presence in 2008 by creating an investment team in New York which includes James Rubin from rival One Equity Partners.

Last year, it made an investment in Bermuda-based Intelsat, a satellite operator with large operations in the United States.

Under the Office Depot deal, BC Partners bought $350 million of Office Depot convertible preferred stock that carries a 10 percent dividend. Office Depot said $275 million of the preferred stock is immediately convertible into common stock at $5 per share, a 32 percent premium above Monday’s closing price. The rest is convertible on the same terms upon shareholder approval.

Office Depot shares were up 16 cents or 4.2 percent at $3.95 on Tuesday afternoon on the New York Stock Exchange.

The office-supplies retailer has seen sales suffer as small business owners and retail consumers spend less on supplies amid the recession, a trend that has also hurt OfficeMax Inc OMX.N and Staples Inc SPLS.O.

To offset the sales decline, Office Depot has been closing stores and laying off workers. It has also been exploring ways to raise money, including selling and then leasing back U.S. and European properties.

Office Depot CEO Steve Odland said in a statement the deal “significantly strengthens” its balance sheet and the retailer will use the proceeds for general corporate purposes.

Office Depot said the BC Partners investment equals an initial ownership interest of about 20 percent, assuming the deal is approved by shareholders and the preferred stock is fully converted into its common stock.

In connection with the investment, Office Depot said Raymond Svider, James Rubin and Justin Bateman of BC Partners have joined its board.

Peter J. Solomon Co and Morgan Stanley & Co Inc acted as financial advisers for Office Depot, while Wachtell, Lipton, Rosen & Katz served as their legal advisor.

Goldman, Sachs & Co was the financial adviser for BC Partners, while Latham & Watkins LLP acted as their legal advisor.

The investment was made out of BC Partners’ European Capital Fund VIII, a 5.9 billion euro fund it finished raising in 2005, a source familiar with the private equity firm said. Just over 50 percent of that fund has been invested, the source said.

Reporting by Nicole Maestri in San Francisco, Jonathan Stempel and Megan Davies in New York; editing by John Wallace, Andre Grenon and Matthew Lewis