TOUGH TIMES AT OFFICE-DEPOT (LIVE VIDEO)

[Anonymous]

Video Message from  Steve Schmidt
office depot
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Tough times at Office Depot
 In the midst of a recession that has hit business and consumer
spending especially hard, it may not be so surprising that retailer
Office Depot is having a rough go of things: The No. 2 office-supplies
chain lost money in each of the past five quarters and is expected to
lose $96 million this year.

But the company, based in Boca Raton,
Fla., is facing troubles that go deeper than reduced demand for paper
and pens: namely, an investigation by the SEC that’s in the final stages
of settlement and a fresh round of probes into whether the company
overcharged government customers. Office Depot CEO Steve Odland, who
has run the $14.5 billion (in revenue) chain since 2005, says Office
Depot (ODP, Fortune 500) is a victim of attacks by disgruntled
ex-employees. Indeed, Odland, 51, who previously served as CEO of
Autozone under investor Eddie Lampert, is beloved by his board and many
investors — one of which, venture capital firm BC Partners, agreed to
throw Office Depot a lifeline in the form of a $350 million investment
last June.

“Steve has a strong record on cost control and putting
together a loyal team,” says James Rubin, a senior partner (and son of
former Treasury Secretary Robert Rubin). But government audits are
starting to verify some of the accusations — and some customers are
starting to pull their business.

This past December, Office Depot
said it had agreed to pay a civil penalty to settle an SEC
investigation that began in 2007. The inquiry primarily involved
allegations that Office Depot leaked information to financial analysts,
violating Regulation FD, which prohibits selective disclosure of
financial information. It also involved separate inquiries into vendor
payments, intercompany loans, and other accounting issues.

Office
Depot won’t comment on the investigation; as part of the settlement,
which is still awaiting approval, it would neither confirm nor deny
wrongdoing.

Now a new round of allegations accuse the company of
overcharging city and state municipalities by as much as $100 million a
year. The charges stem from an ex-employee, David Sherwin, a former
senior account manager who was fired in 2008 (and who has admitted to
accepting payments from Office Depot competitors for his whistleblowing
efforts).

But his allegations, which began in 2008, sparked
investigations by the attorneys general of six states as well as the
Department of Justice — and government audits have started to verify
his claims. Office Depot has since repaid several municipalities, from
Lee County, Fla. ($121,000), to the state of California ($2.5 million).
That’s far from Sherwin’s $100 million estimate, but the numbers are
getting bigger: In December, San Francisco released audit results that
showed $5.75 million in overcharges.

Odland says that the price
discrepancies were caused by a few rogue employees, who have been
terminated, and that the company is a victim of a smear campaign. He
points out that Office Depot has a new centralized ordering system and
has added ethics training and an “open door” policy to encourage
employees to report misbehavior.

But San Francisco and Lee County
have already switched their contracts, valued at more than $18 million,
to industry leader Staples (SPLS, Fortune 500); the state of California
has put its contract out to bid. With the stock at $7, down from the
mid-30s in 2007, the changes had better pay off soon.
http://money.cnn.com/2010/02/15/news/companies/office_depot.fortune/?section=magazines_fortune

[Author]

February 22, 2010 at 11:15 AM