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In a strategic move to reduce interest expenses, Staples Inc. (SPLS - Analyst Report) announced the simultaneous offering and redemption of debt. The company announced the offering in two parts of $500 million each, priced at 2.75% due January 12, 2018 and 4.375% due January 12, 2023, respectively.

The company expects to close the offering on January 14, 2013 and receive net proceeds of $993.8 million after underwriting discount. Subsequently, the company announced a tender offer to repurchase its $750 million outstanding 9.750% debt due 2014 from the proceeds of the new issuance.  

Looking at the interest expenses, the company incurred interest expense of $40.3 million during the third quarter of fiscal 2012, while interest expense came in at $124.2 million for the 39 weeks period ended October 27, 2012.

For Staples, the move is a perfect fit as borrowing costs have gone down despite the significant disruption in the global credit markets. In fact, many other companies are taking a similar step to exchange their higher-interest debt for lower-interest debt.

The move is a part of the company’s strategic initiative to streamline its cost structure. Staples intends to save approximately $250 million annually by the end of fiscal 2015. Moreover, Staples remains focused on improving store productivity by generating incremental sales per store, accelerating growth in adjacent categories, increasing market share in core office supplies and reviving international operations.

Being a leading retailer of office products and services, Staples remain well positioned than its competitors, OfficeMax Inc. and Office Depot Inc. (ODP - Analyst Report), to sustain its growth based on effective merchandising, increasing customer awareness, enhanced online features, expanded assortments and store refurbishing program. The company is gradually lowering its exposure to less profitable ventures and eyeing opportunities with lucrative growth prospects to augment profitability.

Currently, shares of Staples hold a Zacks #2 Rank that translates into a short-term “Buy” rating, and well defines the measures undertaken by the company to uplift itself.

However, we maintain our long-term ‘‘Neutral’’ rating on the stock as we remain cautious on the macroeconomic environment and a sluggish job market, with small businesses and consumers still remaining watchful on their spending.

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