Deal of the week: BC Partners invests $350M in Office Depot

Office Depot Inc., which has been trying to raise money in the wake of slumping sales, announced last week that it raised $350 million from BC Partners, which could give the London-based private equity firm a stake of roughly 20% in the office supplies retailer.

The deal is notable not just because it marks the first U.S.-based investment for BC Partners.

Private equity firms typically seek to take control of firms they invest in, but as leverage has been scarce, minority stake deals have become increasingly common. For example, Boston-based Bain Capital recently agreed to buy a stake of up to 23% in China’s GOME Electrical Appliances Holdings.

Still, even in a minority stake, BC Partners appears to be enjoying good terms. BC Partners bought $350 million of Office Depot convertible preferred stock that carries a 10% dividend. Office Depot said $275 million of the preferred stock is immediately convertible into common stock at $5 per share, a 32% premium above Monday’s closing price.

The retailer has seen sales suffer as small business owners and retail consumers spend less on supplies amid the recession, a trend that has also hurt competitors OfficeMax Inc. and Staples Inc.

To offset the decline in sales, Office Depot has closed some stores and laid off workers. It has also been exploring ways to raise money, including selling and then leasing back U.S. and European properties.

Office Depot CEO Steve Odland said in a statement that the deal with BC Partners “significantly strengthens” its balance sheet and the retailer will use the proceeds for general corporate purposes.

The deal still requires shareholder approval.

In connection with the investment, Office Depot said Raymond Svider, James Rubin and Justin Bateman of BC Partners have joined its board.

The investment was made out of BC Partners’ European Capital Fund VIII, a $6.8 billion fund it raised in 2005. Just over half of that fund has been invested, said a source familiar with the private equity firm.

BC Partners, which has invested in such companies as London-based estate agent Foxtons and MiGros, a supermarket chain based in Turkey, bulked up its U.S. presence in 2008 by creating an investment team in New York. Rubin joined the firm last year from rival One Equity Partners.

Last year, BC Partners also made an investment in Bermuda-based Intelsat, a satellite operator with large operations in the United States. —Reuters