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Staples raises questions
March 23, 2001: 7:56 a.m. ET

Top execs would take home millions from withdrawn IPO
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NEW YORK (CNNfn) - Staples Inc. is planning to buy back stock in its online unit at prices well above the stock's valuation during the Internet craze, giving executives and other insiders tens of millions of dollars, a published report said Friday.

The plan by Staples (SPLS: Research, Estimates) to unwind its own failed plans to create a separate stock for is raising eyebrows on Wall Street, the Wall Street Journal said in its report.

The newspaper said that under the plan to unwind the separate stock, 27 executives and corporate directors would get about $37 million in Staples stock. Other investors, largely employees and venture capitalists, would get an additional $85 million. The plan values at about $900 million, or $7 a share, more than double the $3.25 a share it was valued at in the fall of 1999, when Staples began privately selling shares in the unit, according to the Journal.

The company Tuesday ended its plan to offer the stock of the unit, which was losing money.

graphicDavid Dreman, chairman of Dreman Value Management, which owns 3.4 million Staples shares, called the buyback plan "ludicrous," the newspaper said, and questioned how can be worth so much considering the lackluster performance of more establishes online firms such as Yahoo! Inc. (YHOO: Research, Estimates) and Inc. (AMZN: Research, Estimates).

Staples chief executive Thomas Stemberg stands to walk away with $3 million after $1.2 million in interest payments he made to borrow money to exercise options, the report said, adding he said his nearly 2 percent ownership of Staples guarantees he will put shareholder interests first.

Stemberg added that the valuation of the Internet unit is justified as is growing fast with estimated sales close to $1 billion this year and profitability expected in the fourth-quarter.

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"It has been one of the great Internet success stories," he told the Journal.

Staples decided to create a separate tracking stock for its Internet unit in November 1999, hoping to make a big public offering and big profits. However, not long after filing a prospectus for an initial public offering last February, the shakeout struck, and taking the unit public was no longer an option. reported $512 million in sales in the fiscal year ended last month, up from $94 million a year earlier. But its losses widened to $11.5 million from $730,000. Nor has the stock of the parent company been faring that well. Staples shares were unchanged at $15.63 Thursday, down from their 52-week high of $22.38. graphic