Staples CEO to step down after failed Office Depot deal
Staples Inc. on Tuesday announced that chief executive Ron Sargent will step down from running the country’s largest office supplier after failing to pull off what would have been the acquisition of his career — the purchase of rival Office Depot.
In his 14 years at the helm, Sargent presided over a period of tremendous growth for the Framingham company only to see its success eclipsed by competition from online sellers such as Amazon.com. His last few years have been a period of brutal retrenchment, punctuated by a federal judge’s decision in May that effectively killed the $6 billion deal for Office Depot.
Robert Sulentic, the lead independent director on Staples’ board, said the company had to move on with new management.
“With the termination of the merger, we mutually agreed that now is the right time to transition to new management to lead Staples through its next phase of growth,” Sulentic said in a statement.
Sargent will be replaced, at least temporarily, by Shira Goodman, currently president of North American operations. She will become interim CEO at the company’s annual meeting on June 14, and a candidate for the permanent position.
“Shira has tremendous experience and a long track record of success at Staples, always bringing fresh perspective and change to every role she has had,” Sulentic said.
Sargent’s risky gambit to extend the Staples franchise by acquiring Office Depot drew the opposition of the Federal Trade Commission, which in December filed a complaint in US District Court in Washington to block the deal on the grounds that it would reduce competition in the market serving large businesses. Staples fought back but lost when Judge Emmet Sullivan sided with the agency.
Joe Feldman, a retail analyst with Telsey Advisory Group in New York, said the timing of Sargent’s departure seemed to make sense.
“In light of the failed merger with Office Depot, I think there was a sentiment and a thought there should be some sort of change,” Feldman said in an interview. “Now is the time to look at what’s next for the company.”
But Staples spokesman Mark Cautela said Sargent and the directors first began discussing his departure in the past few months, prior to the judge’s decision. After the judge’s decision, he said, Sargent and the other board members agreed to have a new top executive in place. They reached the severance agreement on Monday, Cautela said.
Sargent, 60, joined Staples in 1989, when the company had just 20 stores. At the time he was working for Kroger, the big Midwestern supermarket chain, and was recruited to help Staples expand westward from its East Coast roots. He steadily rose in the ranks over the years, and was promoted to be president in 1998.
Staples cofounder Tom Stemberg, the chief executive at the time, identified Sargent as his successor long before announcing the promotion in September 2001. The two men are the only chief executives in the company’s 30-year history.
After taking over the top job in February 2002, Sargent maintained Staples’ dominant position in the office supplies market, more than doubling its annual revenues to nearly $25 billion and turning the company into one of the country’s biggest retailers. But as more retail sales moved online, the Staples franchise lost some of its power and its revenues have declined every year since its fiscal 2011 year.
Sargent launched a series of cost-cutting initiatives to save money on real estate and personnel; its store count is down to 1,900 worldwide, from a peak of 2,300, and its workforce of 75,000 is about 16,000 below peak employment.
The company’s stock performance reflects the reversal in fortune: Shares traded in the $12 range at the start of 2002, and peaked at about $28 in late 2006, before plunging in recent years. They closed Tuesday at $8.80 a share.
When he announced the Office Depot deal in February 2015, Sargent billed it as a transformative event that would allow even deeper cuts in the brick-and-mortar operations while boosting the delivery business and efforts to expand Staples beyond office supplies.
But in moving to block the merger, the FTC argued that rivals such as Amazon simply didn’t have the infrastructure in place to compete with a combined Staples-Office Depot for huge supply contracts with the biggest companies.
Sargent publicly lobbied for the merger, and was prepared to take the stand in his company’s defense in Washington federal court. But Staples’ legal team, in a surprising move, opted not to call any witnesses for its side — a decision that may have hurt its case.
After losing in court, Staples quickly turned to a Plan B: a potential sale of its European operations, more North American store closures, and an expansion of its sales force working with mid-size businesses.
Like Sargent, Goodman is a longtime veteran of Staples’ management ranks. Goodman, 55, joined Staples in 1992 from the Boston consultancy Bain & Co., where she helped Staples develop its delivery business. She has since worked in almost every area of the company.
Her sudden promotion puts her in a strong position to take over as permanent CEO. But Staples said its board will consider external and internal candidates for the job. The board has hired headhunting firm Korn Ferry to find Sargent’s replacement for the long term.
Sargent will continue to serve on the board as a director and nonexecutive chairman through January, the end of the company’s fiscal year. After he leaves, Sargent will be paid about $4 million over the course of two years, and continue to receive benefits such as health insurance until he reaches 65. Staples said the added costs of those benefits is expected to total nearly $900,000.