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 user 2010-02-22 at 11:15:01 am Views: 52
  • #23418

    Video Message from  Steve Schmidt
    office depot


    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.

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

    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

    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.