Office Depot and OfficeMax are discussing a merger with a deal possible this week, said a person familiar with the matter.

The companies have been discussing a potential stock swap that would create a single office-supply retailer to compete with Staples. Office Depot, the second-largest office-supplies retailer in the U.S., has been exploring options since September, when activist fund Starboard Value became its largest shareholder.

A merger would create a company with almost $18 billion in revenue, compared with $25 billion in revenue last year for Staples. A deal also could be a victory for Starboard, which has been pushing Office Depot to create value for shareholders.

Starboard Chief Executive Officer Jeffrey Smith wrote a letter to Office Depot CEO Neil Austrian on Sept. 17 arguing that the retailer's "poor operating performance" has hurt the shares. Smith, whose firm owns 13 percent of the chain, said Office Depot should move to smaller stores and reduce the number of items it sells. The chain also should cut general expenses and "significantly" lower advertising costs, Smith said.

Julie Treon, a spokeswoman for OfficeMax, wouldn't confirm merger talks. "There have been rumors for a while about consolidation in the marketplace," Treon said by phone. "It's also been our policy not to comment on market rumors or speculation."


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Brian Levine, a spokesman for Office Depot, declined to comment in an email. The Wall Street Journal earlier reported the talks on its website.

The shares of Office Depot have lost about 90 percent of their value since peaking a $44.46 in May 2006. The retailer's shares closed at $4.59 on Friday, giving it a stock-market value of $1.31 billion. OfficeMax closed at $10.75 for a market value of $932.5 million.

In response to pressure from Starboard, Office Depot adopted a so-called poison-pill provision Oct. 30. The retailer passed a shareholder rights plan that would give its investors additional shares if one entity surpasses 15 percent ownership, it said in a statement at the time. Starboard owned 14.8 percent of the Boca Raton, Florida-based retailer as of Oct. 12.

The provision is designed to protect all stockholders "against potential acquirers who may seek to take advantage of the company and its stockholders through coercive and unfair tactics aimed at gaining control of the company without paying all stockholders a full and fair price," according to the statement.

Office Depot also hired Morgan Stanley as an adviser to defend against Starboard's actions, the person said.

There has been speculation of a merger between the two smaller office retailers since last year. A combination of Office Depot and OfficeMax would be "natural," Staples Chairman and CEO Ronald Sargent said last year at a conference. The FTC is more likely to allow such a combination than if Framingham, Mass.-based Staples were to buy either company, he said.