US-Cuba thaw could bring Staples a windfall

US-Cuba thaw could bring Staples a windfall
Office Depot, in line for sale to office supply chain, holds claim to
seized power company
By Taryn Luna GLOBE CORRESPONDENT JULY 21, 2015

Staples Inc. knows the business of selling office supplies inside out.
But it doesn't have a clue how to keep the lights on in Havana.

Nonetheless, the Framingham chain of office superstores may soon become
the unlikely owner of Cuban Electric Co., the latest twist in a strange
business saga that stretches over half a century from the Caribbean to
Idaho to Boca Raton, Fla.

The power utility, started by a Florida company, lost its assets when it
was nationalized by the government of Fidel Castro in 1960. Cuban
Electric may merely exist on paper today, but it still holds a
compensation claim that could be worth more than $1 billion.

Staples is in line to take possession of the claim through its pending
acquisition of rival Office Depot Inc. The fate of Cuban Electric, long
an obscure corporate curiosity, and other seized assets has gained more
relevance recently as the Obama administration moves to normalize
relations with the island nation.

With the relationship between the two countries softening fast — the
United States reopened its embassy in Havana on Monday — some legal
experts consider resolution of the 5,913 claims for Cuban compensation
by American companies and individuals to be an important step in the
political process.

The US Foreign Claims Settlement Commission certified the Cuban Electric
claim to be worth $267 million — an amount that, technically, has been
collecting interest at a rate of 6 percent a year for 55 years and is by
far the largest individual claim.

The current value of all claims combined is about $8 billion. But it's
unclear how much money, if any, will ever be collected.

"Unless [the Cuban government] buried a whole bunch of gold bars that we
don't know about, there isn't money to pay," said Patrick Borchers, a
Creighton University law professor who led a study of the claims issue.

Cuban Electric was organized in 1927 and, three decades later, supplied
about 90 percent of the country's electricity. It owned a power plant,
nearly two dozen generation stations, 230 miles of gas mains, and 6,619
miles of power lines — roughly the driving distance from Boston to San
Francisco and back — as well as 425 trucks and Jeeps and other assets by
the time it was nationalized in 1960. At the time, it was owned by
American & Foreign Power Co.

With the company's assets seized, ownership of Cuban Electric later
passed through several hands as a result of mergers and other business
deals. In 1967, American & Foreign Power merged with Electric Bond &
Share Co.

The company then merged with Boise Cascade, a timber operation in Idaho.
Boise Cascade, which morphed into a paper maker and office-supply
distribution company, bought OfficeMax Inc. in 2003 and later adopted
its name. OfficeMax merged with Boca Raton, Fla.-based Office Depot in
2013. In February, Staples said it would acquire Office Depot for $6.3
billion.

Staples and Office Depot both declined to comment about Cuban Electric
and its outstanding claim for compensation.

Though Office Depot holds the largest individual claim, many other big
American companies, such as Coca-Cola Co., Starwood Hotels & Resorts
Worldwide, and General Electric Co., also have compensation rights for
assets seized long ago in Cuba.

President Obama called on Congress earlier this year to lift a trade
embargo after a five-decade stalemate between the two countries. This
month, the State Department said the unsettled claims would be a
priority among the issues the Obama administration expects to discuss
soon with the Cuban government, but also warned that it would be lengthy
process.

It's not clear how that would work. Given Cuba's economic state, the
2007 Creighton study on Cuban claims focused on other ways to compensate
companies and individuals for their losses, apart from cash payments.
For example, Borchers said, an Office Depot settlement might include
exclusive rights to open office-supply stores in major Cuban cities.

"We were trying to think outside the box in how to deal with the
claims," Borchers said.

Others don't believe those ideas would work. The kinds of alternative
compensation suggested in the Creighton study are unrealistic, said
Mauricio Tamargo, who was chairman of the foreign claims settlement
commission from 2002 until 2010 and now works as an international law
attorney in Washington. Tamargo and his firm represent several clients
with Cuban claims.

He said Cuba would need to change its entire political and economic
system for US claims holders to safely invest money in businesses
without the risk of seizure and with access to reasonable legal protections.

"I believe Cuba has the ability to pay it," Tamargo said. "Even if they
don't have the ability to pay it, they certainly can finance it easily.
You have to factor into the picture that Cuba will be free of the
embargo and free to make money."

So far, the conversation about how to settle the established
compensation claims leaves out thousands of families who were Cuban
citizens and fled the country to escape Castro's communist regime. Legal
experts said the US government has no jurisdiction over claims from
citizens of other countries.

Tamargo, whose Cuban-American family lost property to the government,
said Cuba might address the issue after the US claims are settled.

"It's creating a lot of excitement," he said.

Taryn Luna can be reached at taryn.luna@globe.com. Follow her on Twitter
@TarynLuna.

Source: Staples Inc. merger with rival could come with Cuban twist -
Business - The Boston Globe -
https://www.bostonglobe.com/business/2015/07/20/staples-inc-merger-with-rival-could-come-with-cuban-twist/x39hhQJVrZyISUXmzDosnJ/story.html