The parent of Office Depot said it’s open to a potential tie-up with Staples, but only if it can avoid the regulatory pushback that derailed their last merger attempt.

ODP Corp. sent a letter Tuesday to Sycamore Partners, the private-equity owner of Staples, rejecting Staples’ original offer and suggesting some alternative directions. ODP would be open to either a joint venture or a deal where Staples buys only its retail and consumer-facing e-commerce operations, it said, noting that Staples’ unsolicited offer to acquire it for US$40 a share would bring too much regulatory risk.

“The board has unanimously concluded that there is a more compelling path forward to create value for ODP and its shareholders than the potential transaction described in your proposal,” ODP Chairman Joseph Vassalluzzo said in the letter.

Last week, closely held Staples, under the corporate name USR Parent Inc., sent a letter to ODP laying out a plan to buy the company in a deal valued at about US$2.1 billion. Staples said at the time that would commence a tender offer in March if ODP doesn’t cooperate. A spokesperson for Staples didn’t immediately reply to a request for comment.

Antitrust Risk

A tie-up, even a partial one, would bring together two of the biggest names in office supplies at a time when brick-and-mortar retailers are trying to adapt. Staples had previously tried to buy Office Depot, but the US$6.3 billion acquisition was called off in 2016 due to antitrust scrutiny.

Office Depot’s parent doesn’t intend to “engage in a transaction that, as history has shown, would likely result in a prolonged and expensive regulatory review process with no guarantee of success,” the ODP chair wrote, seeking a “hell or high water” provision from Staples. That’s essentially a guarantee Staples is willing to assume all the regulatory risk associated with the deal, including any divestitures that may be needed or any legal challenges that come forward.

ODP has already initiated a sale of its CompuCom business and has been focusing on turning around its business-to-business unit, it said.

ODP’s shares were little changed Tuesday. Since Jan. 8, the last trading day before the offer was revealed, the shares had climbed 24 per cent through Friday’s close.

--With assistance from Scott Deveau.