UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
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Preliminary
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Soliciting
Material Pursuant to §240.14a-12
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OFFICE
DEPOT, INC.
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(Name
of Registrant as Specified in its Charter)
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Levitt
Corporation
Woodbridge
Equity Fund LLLP
Mark
Begelman
Martin
E. Hanaka
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(Name
of Person(s) Filing Proxy Statement, if other than the
Registrant)
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The
following is the text of a press release and open letter to shareholders of
Office Depot, Inc. issued on April 9, 2008 by Woodbridge Equity Fund LLLP and
Levitt Corporation.
FOR
IMMEDIATE DISTRIBUTION
WOODBRIDGE SENDS OPEN LETTER TO OFFICE DEPOT
SHAREHOLDERS CRITICIZING MANAGEMENT FOR CONSISTENTLY BLAMING MACROECONOMIC
ENVIRONMENT FOR POOR PERFORMANCE AND INABILITY TO EXECUTE
HIGH
MANAGEMENT TURNOVER, CUSTOMER LOSSES, VENDOR PAYMENT ISSUES AND ACCOUNTING
RESTATEMENTS RAISE SIGNIFICANT GOVERNANCE CONCERNS
Woodbridge
Urges Shareholders to Vote GOLD Proxy Card for Highly-Qualified Woodbridge
Director Nominees Mark Begelman and Martin E. Hanaka
FORT
LAUDERDALE, FL – April 9, 2008 – Woodbridge Equity Fund LLLP and Levitt
Corporation (NYSE: LEV), together “Woodbridge,” today mailed a letter to the
shareholders of Office Depot, Inc. (NYSE: ODP). Woodbridge’s letter
raises serious concerns about the ability of the current Office Depot board and
management to execute on the recently-announced “long-range strategic plan” and
questions management’s consistent blame of the macroeconomic environment for the
Company’s problems despite evidence that management
performance
is the true cause. Woodbridge urges Office Depot shareholders to
protect their investment by electing its two highly-qualified nominees, Mark
Begelman and Martin E. Hanaka, to the Office Depot board of
directors. Shareholders can vote their GOLD proxy card FOR
Woodbridge’s nominees by Internet, telephone or mail today.
“We are
extremely frustrated by management’s use of the macroeconomic environment as the
scapegoat for their persistent underperformance. While the current
economic environment is certainly difficult, it does not explain Office Depot’s
consistent underperformance compared to Staples in virtually all key retailing
metrics. This underperformance dates back over five years, across
good economic times and bad,” said Alan B. Levan, President of Woodbridge
Capital Corporation, the General Partner of Woodbridge Equity Fund
LLLP. “Office Depot’s poor performance and the unwillingness of the
board to recognize that this results from management’s inability to execute –
not the economy – are unacceptable. Our highly-qualified nominees are
the right people to ensure that Office Depot’s problems are finally recognized
and solved.”
For
additional information regarding Woodbridge’s nominees, go to www.RebuildOfficeDepot.com.
The full
text of Woodbridge’s letter appears below:
PROTECT
YOUR INVESTMENT,
VOTE
FOR WOODBRIDGE’S DIRECTOR NOMINEES
SIGN,
DATE AND RETURN THE ENCLOSED GOLD PROXY CARD TODAY
Dear
Fellow Shareholder:
As the
Office Depot, Inc. annual meeting draws closer, we want to provide you with
important information so that you can make an informed decision on April
23. As you are aware, we have nominated Mark Begelman and Martin E.
Hanaka, two highly-qualified and experienced retail executives, for election to
the board of directors of Office Depot. If elected, our nominees will
provide the necessary expertise and leadership on the board to finally turn
around Office Depot.
THE
LATEST OFFICE DEPOT NEWS:
INCONSISTENT
PRICING PRACTICES AND POOR CUSTOMER SERVICE LEAD TO
TERMINATION OF CONTRACT WITH THE STATE OF GEORGIA AND ONGOING
INVESTIGATIONS OF OTHER STATE CONTRACTS NATIONWIDE
TERMINATION OF CONTRACT WITH THE STATE OF GEORGIA AND ONGOING
INVESTIGATIONS OF OTHER STATE CONTRACTS NATIONWIDE
The state
of Georgia recently terminated its statewide contract with Office Depot as
Georgia’s exclusive vendor of office supplies. In a February 2008
letter announcing the decision, Tim Gibney, the Assistant Commissioner of
Purchasing wrote, “Various performance issues by Office Depot have been
identified and documented the past few months, including numerous pricing,
service delivery issues and overall lack of responsiveness.”1 After
noting that a formal cure letter was sent to Office Depot approximately six
months earlier, the letter continues, “…the errors committed by Office Depot
have simply occurred for too long with too much effort being expended by the
state to assist them in delivering the level of service and pricing outlined in
our state contract.”
________________________
1 Permission to
excerpt was neither sought nor obtained.
An
article published in the San
Jose Mercury News on April 7, 2008, highlighted a similar problem with a
state contract in California, as well as potential problems with other state
contracts nationwide.2
For
background, Office Depot won a California state contract in 2006, which was
supposed to enable small businesses to sell office supplies to California
agencies and to cut costs. Instead, serious issues have arisen about
Office Depot’s conduct and it appears that costs have actually
risen.
The Mercury News reports that
while Office Depot was supposed to have partnered with nine small businesses to
win the contract, those businesses all list the same address for an office that
is staffed by an Office Depot subcontractor. In addition, the Mercury News reports that its
analysis shows California’s “annual cost for office supplies rose 20 percent
under the contract and included tens of thousands of dollars in
overcharges.” The newspaper found Office Depot had increased
the cost to the state on 800+ items – even though the manufacturer's price had
not changed.
As
reported in the Mercury
News:
“‘I think
it's a scam,’ said Rick Marlette, a professional marketing analyst whose audit
of the office supply contract in Georgia spurred state officials to kill their
deal with Office Depot last month. ‘They've played these tricks in the past,
gotten by with it, and they've gotten bolder and bolder.’ In
Marlette’s study of California’s contract and billing records – more extensive
than that conducted by the newspaper – he concluded the state has overpaid more
than $1 million in office-supply purchases.”
The
astonishing truth is that this might just be the tip of the
iceberg. According to the Mercury News:
“‘Other
states are examining their own contracts with Office Depot. North
Carolina won reimbursements after identifying overcharges in an
audit. Nebraska is expected to release its audit next
week. And officials in New York and Wisconsin have called meetings
with Office Depot, but it's unclear whether formal audits will be
ordered.’”
These
incidents are prime examples of mismanagement at Office Depot. We find it
disgraceful that the Company cannot serve its customers and correct its mistakes
despite warnings and requests for improvement. We have to wonder how
many smaller and everyday consumers have experienced the same level of
dissatisfaction and have taken their spending dollars to another office supply
retailer.
Office
Depot needs leadership that is capable of turning the company around and
delivering high-quality service to its customers. Taking care of
customers is the very foundation of success in retailing, and the Company has
neglected this principle for far too long. As we have noted before,
Office Depot is clearly not “taking care of business.”
CHANGE
IS NEEDED NOW AT OFFICE DEPOT:
DECLINING
EARNINGS, MARKET SHARE AND FREE CASH FLOW CANNOT ALL BE BLAMED ON THE
“MACROECONOMIC ENVIRONMENT”
Office
Depot continues to blame the macroeconomic environment for its
underperformance. Yet, Staples has reported solid growth in sales and
increases in operating profit and earnings per share in the very same
macroeconomic environment. Total sales at Staples increased 9% in
2007, compared to an increase
________________________
2 Permission to
excerpt was neither sought nor obtained.
of only
3% for Office Depot.3 More
specifically, North American Retail Sales increased 4% in 2007 at Staples while
sales at Office Depot’s North American Retail Division were essentially flat.4 Operating income grew 6% at Staples in 2007
despite an extra week in the previous fiscal year while Office Depot’s operating
income declined by an astonishing 32%. Similarly, diluted earnings
per share rose 5% at Staples in 2007 while Office Depot’s diluted earnings per
share plummeted by 18% in the same period. Finally, in stark contrast
despite the same operating environment, Staples generated $891 million of free
cash flow in 2007, while Office Depot’s free cash flow was a stunning negative
$49 million.
Office
Depot’s underperformance is not isolated to the last year. Office
Depot has been underperforming Staples on virtually all key retailing metrics
for over
five years, across good economic times and bad!
THIS
IS NOT A MACROECONOMIC ISSUE, BUT AN EXECUTION PROBLEM
Clearly,
Staples has been able to perform well in the same “macroeconomic
environment.” So Office Depot shareholders should consider other
reasons for the underperformance at the Company, even if management and the
board will not. We believe responsibility lies squarely at the feet
of the current management team and showcases their inability to
execute. It’s no surprise that earnings are down given the company’s
lack of execution.
THE
MANY EXAMPLES OF MANAGEMENT’S INABILITY TO EXECUTE
Office
Depot’s own March / April 2008 investor presentation includes a long list of
ongoing issues the Company has been struggling with since 2005, including:5
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Functionally-aligned
organization with no divisional
leadership
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Limited
growth opportunities
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Duplicate
costs due to non-integrated systems
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IT
systems in disarray and impeding
growth
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Non-integrated
acquisitions, most running independently with duplicate overhead, multiple
strategies and few synergies
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Minimal
process definition and
sophistication
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Duplicate
supply chain
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Operating
margin gap versus largest competitor and no plan to close
gap
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Stagnant
growth
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Losing
market share
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Aging
stores and no plans to improve / standardize store format. Many
versions of a new store format had been attempted but not finalized or
proven
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700
different store sets and at least five different retail formats –
inconsistency in shopping experience and service, and lack of
differentiation
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Contributed
to $385M in charges from inception through the end of
2007
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________________________
3 Excluding the impact
of the 53rd
week in 2006.
4 Excluding the impact
of the 53rd week in
2006.
5 Permission to
excerpt was neither sought nor obtained.
The
reality is that the Company’s 2008 “long-range strategic plan,” simply rehashes
the same long-term issues that were facing the Company in 2005 without providing
new solutions. The Company has also been plagued by a high turnover
rate among key executives. And again, these are not macroeconomic
issues, but rather execution failures. We strongly feel that there
will be no improvements at Office Depot without the necessary intervention of
new strategic thinking and leadership on the board.
STEVE
ODLAND: VENDOR PAYMENT ISSUE UNDER HIS TENURE POINTS TO LACK OF
OVERSIGHT AND LOOSE GRIP ON OPERATIONS
In
November 2007, following an Audit Committee review, Office Depot revealed that
“funds due or received from vendors previously recognized in the current quarter
should have been deferred into later periods.”6 Essentially, the Company
inappropriately recorded its revenues, resulting in artificially boosted
revenues and earnings. We believe this illustrates a lack of
oversight, governance and strong corporate standards at the Company and we
firmly believe this type of behavior cannot be tolerated.
In our
view, even one occurrence of errors in the timing of recognition of vendor
programs is one too many. We believe it is time for fresh leadership
on the board and these issues underscore the need for board representatives who
can bring back strong oversight and a firm grip on operations that Office Depot
and its shareholders deserve.
Mr.
Odland has also continued to profit as shareholders have watched Office Depot’s
share price decline 70% during his tenure. Since the end of 2006,
shareholders have lost $7 billion in value, while Mr. Odland was awarded $17.8
million in compensation in 2007 alone.7
Woodbridge’s
actions are not unexpected. In fact, our calls for change are echoed
by industry analysts, including JP Morgan Analyst Stephen C.
Chick. In an analyst report published on March 3, 2008, Mr Chick
wrote:8
“[Office
Depot’s] BOD has fiduciary responsibility and needs to be
accountable. Shareholder activism here is likely – from current
shareholders or future ones.”
WHY
HAS THE CURRENT OFFICE DEPOT BOARD ALLOWED THESE PROBLEMS TO
CONTINUE?
Why has
the board not stepped in to stop the bleeding at Office Depot? Why do
they continue to stand by, satisfied with the status quo and the current
lackluster performance of Office Depot? The answer is they are not
personally feeling the pain of the average investor.
The
Office Depot board continues to support Mr. Odland despite this poor
performance. In an article published on April 6,
2008 in the South Florida
Sun-Sentinel, Lead Director Neil Austrian was adamant in his
support of Mr. Odland:9
“‘The
board is totally, totally committed to Steve and the management team,’ said
Austrian, who served as interim CEO in 2004. ‘There's nobody on the board that
wants to see a management change at this point in time.’”
________________________
6 From Office Depot's
10-Q/A filed November 20, 2007.
7 Based on grant date
fair value of the options.
8 Permission to excerpt was neither sought nor
obtained.
9 Permission to excerpt was
neither sought nor obtained.
DAVID
FUENTE: CASHING OUT AT THE PEAK WHILE INVESTORS ARE LEFT TO SHOULDER
THE BURDEN
David
Fuente has served on the Office Depot board for 21 years, well beyond the
Company’s own guideline limiting board member terms to 10 years. In
addition, Mr. Fuente received $8.6 million in severance and has continued to
serve on the board after being replaced as CEO in 2000 following the Company’s
disappointing results.
Despite
being forced to step down for poor performance, Mr. Fuente has remained on the
board as an influential director. He certainly has good timing when
it comes to selling stock. Between May 11 and May 12, 2006, Mr.
Fuente sold one million shares at prices ranging between $43.90 - $45.86 per
share – the stock’s highest ever peak. Why did Mr. Fuente lose faith
in the Company, cashing out his options almost two years before they were set to
expire? Why did Mr. Fuente get out at the stock’s peak while Office
Depot’s investors have held on to stock, hopelessly watching the value of their
investment plummet?
Shareholders
need to be represented by directors who not only have faith in the Company, but
a motivation to ensure that the future of the Company is
secure. After cashing out at the stock’s peak, Mr. Fuente has
continued to be rewarded handsomely for his director activity on the board,
receiving more than $700,000 in additional compensation from 2006 –
2008.
WOODBRIDGE’S
DIRECTOR NOMINEES WILL FIGHT TO PROTECT YOUR INVESTMENT
Office
Depot has attempted to criticize Woodbridge for when we bought stock and how
much stock we own. The truth is we own more stock than all of Office
Depot’s directors combined. While the Company’s proxy filed on March
13, 2008 states that the members of the board of directors own approximately 4.9
million shares, the majority of these “shares” have never been issued and
consist of options that were exercisable within 60 days of the proxy
statement. Essentially, their only investment in the Company is the
value of the stock options allotted to them.
In
reality, we are investors just like you, with a shared interest to see the value
of the Company increase, which is more than we can say about the current
management and board of Office Depot.
DON’T
LET YOUR INVESTMENT BE SQUANDERED ANY LONGER, ELECT NOMINEES WHO WILL WORK FOR
SHAREHOLDERS’ BEST INTERESTS
It is
time for new representation on the Office Depot board and greater value for
Office Depot shareholders. Woodbridge’s director nominees, Mark
Begelman and Martin E. Hanaka, will fight to protect your
investment.
We urge
you to sign, date, and return the enclosed GOLD proxy card today with a
vote FOR our nominees. If you have any questions, or need assistance
in voting your shares, please call our proxy solicitor, Georgeson Inc., toll
free at 877-651-8856.
For more
information about our nominees and their plans for restoring Office Depot’s
value, please visit: www.RebuildOfficeDepot.com.
Sincerely,
Woodbridge
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If
your shares are registered in your own name, please sign, date and mail
the enclosed GOLD Proxy Card to Georgeson Inc. in the self-addressed,
postage-paid envelope provided today.
If
your shares are held in the name of a brokerage firm, bank nominee or
other institution, please sign, date and mail the enclosed GOLD Voting
Instruction Form in the self-addressed, postage-paid envelope provided.
Remember--only your latest dated proxy will determine how your shares are
to be voted at the meeting.
If
you have any questions or need assistance in voting your shares, please
contact our proxy solicitor:
 199
Water Street, 26th
Floor
New
York, NY 10038
Shareholders
Call Toll Free: 877-651-8856
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Woodbridge
Equity Fund LLLP
Woodbridge
Capital Corporation, a wholly-owned subsidiary of Levitt Corporation, is the
general partner of, and Levitt Corporation is the limited partner of, Woodbridge
Equity Fund LLLP. Woodbridge Equity Fund LLLP is a beneficial owner
of Office Depot, Inc. (the “Company”) securities and a participant in the proxy
solicitation.
Levitt
Corporation
Levitt
Corporation, directly and through its wholly-owned subsidiaries, historically
has been a real estate development company. Going forward, Levitt
Corporation intends to pursue acquisitions and investments opportunistically
within and outside the real estate industry.
Additional
Information
Levitt
Corporation and Woodbridge Equity Fund LLLP (together, “Woodbridge”), and Mark
Begelman and Martin E. Hanaka (together, the "Nominees" and, together with
Woodbridge, the "Proponents") filed a proxy statement with the Securities and
Exchange Commission (the “SEC”) on March 27, 2008 containing information about
the solicitation of proxies for the 2008 Annual Meeting of the shareholders of
the Company.
Investors
and security holders of the Company are urged to read the proxy statement
because it contains important information. Detailed information
relating to the Proponents and Alan B. Levan, John E. Abdo and Seth Wise,
participants in the solicitation of proxies from Company shareholders, can be
found in the proxy statement filed by the Proponents. The proxy
statement and other relevant documents relating to the solicitation of proxies
by the Proponents are available at no charge on the SEC’s website at http://www.sec.gov. In
addition, the Proponents will provide copies of the proxy statement and other
relevant documents without charge upon request. Requests for copies
should be directed to the Proponent’s proxy solicitor, Georgeson Inc. at
1-877-651-8856.
Forward-Looking
Information
Some of
the statements contained herein include forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that involve substantial risks and uncertainties.
Some of the forward-looking statements can be identified by the use of words
such as "anticipate," "believe," "estimate," "may," "intend," "expect," "will,"
"should," "seeks" or other similar expressions. Forward-looking statements are
based largely on management's expectations and involve inherent risks and
uncertainties. In addition to the risks identified below, you should refer to
Levitt Corporation’s and the Company’s periodic and current reports filed with
the SEC for specific risks which could cause actual results to be significantly
different from those expressed or implied by those forward-looking
statements. Any number of important factors which could cause actual
results to differ materially from those in the forward-looking statements
include: the costs and disruption to Levitt Corporation’s or the Company’s
business arising from the proxy contest and related litigation; the diversion of
management time to issues related to the proxy contest; the ability to
successfully solicit sufficient proxies to elect the Nominees to the board of
directors of the Company; the ability of the Nominees to influence the other
directors and the management of the Company and to improve the corporate
governance and strategic direction of the Company; risk factors associated with
the business of Levitt Corporation, as described in Levitt Corporation’s
periodic reports filed with the SEC, which may be viewed free of charge on the
SEC's website at http://www.sec.gov;
and risk factors associated with the business of the Company as described in the
Company’s Form 10-K for the fiscal year ended December 29, 2007, and in other
periodic reports of the Company, which are available free of charge on the SEC’s
website at http://www.sec.gov. Accordingly,
you should not rely on forward-looking statements as a prediction of actual
results.
Contacts:
Steve
Lipin/Nina Devlin
Brunswick
Group
212.333.3810
Investors:
Georgeson
877-651-8856