By DANIEL TAUB

Staff Reporter

Torrance-based Viking Office Products Inc., the world’s largest mail-order office-supply company, last week received federal approval for its proposed merger with Office Depot Inc., clearing the way for stockholders of both companies to vote on the $2.7 billion deal next month.

But if the merger receives stockholder approval which is expected in the next two to three months what will become of Viking, which has been selling three-ring binders, overhead projectors and printer ribbons here for the past 38 years?

Representatives from both companies and Wall Street analysts say that little is likely to change for Viking.

Irwin Helford will remain chairman of company, which will be run as an operating subsidiary of Office Depot. Layoffs are not expected at Viking’s 600-employee Torrance headquarters or at its distribution centers in the United States and abroad. And Viking will continue selling its supplies through its own catalog.

“Viking will continue as Viking,” said Gary Schweikhart, vice president of public relations for Delray Beach, Fla.-based Office Depot. “I think one of the whole purposes of merging with Viking is they have a great reputation. They have a strong customer base. The way to do it is to maintain the Viking name and operation.”

Viking was founded in 1960 by Rolf Olstern, who remained a member of the company’s board of directors until two years ago. In 1988, Viking was taken over in a leveraged buyout by Dillon Read & Co. Inc. Two years later, the company went public and began selling shares on Nasdaq. Since then, it has had a secondary offering, and three 2-for-1 stock splits. In June 1996, the company reached $1 billion in annual sales.

Viking had a net income of $70.1 million (81 cents a share) for the fiscal year ended June 30, 1997 compared with $60.5 million (70 cents a share) for the previous fiscal year.

Office Depot reported net income of $159.7 million (97 cents a share) for the fiscal year ended December 27, 1997 compared to $129 million (80 cents a share) for the like period a year earlier.

Locally, Viking owns a 180,000-square-foot building in Torrance. In addition to housing Viking’s executive and administrative staffs, the headquarters also houses a customer-service center that handles West Coast phone orders. The building underwent a two-year, $50 million renovation that was completed last August.

Viking also has a 60,000-square-foot warehouse in Gardena that handles distribution for the L.A. area, but the company plans to move that operation which has about 50 employees to a new, 100,000-square-foot warehouse in La Mirada this summer. The move was planned before the Office Depot purchase was announced on May 18.

Charlotte Wiethoff, vice president of administration for Viking Office Products, said there is some overlap between Viking and Office Depot distribution centers, and that some of those centers might be combined under one roof but likely without layoffs.

“It could be in some cities that neither of our facilities is adequate and we shut down and open a new one,” she said.

In L.A. County, Office Depot has its own distribution center in Signal Hill that could overlap with Viking’s new La Mirada warehouse, but it is not yet known what will be done with those two locations.

“We really haven’t gotten far enough down the path to know whether L.A. will be affected. It’s too soon to know,” Wiethoff said.

The lack of major impact on the company speaks to why Office Depot wanted to purchase Viking in the first place.

Company officials and analysts say the reason for the merger is twofold: Viking has a better developed and respected mail-order operation than Office Depot, and Viking also has a greater international presence.

In the catalog area, however, officials from both firms say the combined company will continue publishing both the Viking catalog and the Office Depot catalog because each catalog retains a following of its own, although Viking’s is larger. Some production operations might be merged to cut costs.

It is in international sales that Office Depot is likely to find the most value in its purchase. The company has some presence in eight countries besides the United States and Canada, but only has a particularly strong presence in France. Viking, meanwhile, has a strong operations around the world, including in Germany, the United Kingdom, Belgium, Australia, the Netherlands, Italy and Austria. About 63 percent of Viking’s revenue in the 1997 fiscal year came from outside the United States.

“What (Office Depot) gets is an international presence in 11 major markets and distribution infrastructure and market research in those markets,” said Chuck McDonald, an analyst with William Blair & Co. who follows both companies.

Nonetheless, Wall Street initially didn’t think Office Depot was getting such a good value in Viking. Office Depot’s stock dropped 9.8 percent to close at $31.06 on the day of the merger’s announcement May 18, then slipped under $30 a share a share in the days following. Viking’s stock, meanwhile, jumped 24.5 percent to close at $29.81 on the day of the merger’s announcement, then reached as high as $32.75 in the weeks following.

Office Depot’s stock has since recovered, and was trading at around $33.50 last week, and Viking has maintained its high trading price.

Aram Rubinson, an analyst with PaineWebber in New York who follows both companies, said he thinks Office Depot is getting a fair, if not low, price for Viking by paying about 21 times Viking’s annual earnings before interest and taxes.

Westboro, Mass.-based Staples Inc., Office Depot’s main competitor, in April agreed to purchase Quill Corp., another office-supply catalog company, for about 19 times Quill’s annual earnings before interest and taxes and Quill has no international operations, Rubinson noted.

Office Depot’s initial stock slip reflected a lack of knowledge about Viking’s value, Rubinson said.

“I think people misread the deal,” he said. “I think also Wall Street doesn’t appreciate the model of Viking as much as some of us do.”