Corporate Express, the Dutch office supplies group, sought to fend off a hostile bid from Staples, its US rival, with a €1.7bn offer on Wednesday for Lyreco, a privately held French group.

The agreed bid offers Lyreco’s shareholders – principally, Georges Gaspard, grandson of the founder – new shares in Corporate Express representing 29.9 per cent of the group, €560m in cash and a €340m subordinated vendor loan note, subject to the approval of Corporate Express shareholders.

The proposal leaves Corporate Express shareholders with a choice between accepting Staples’ €8 per share cash bid or voting in favour of the Lyreco takeover and accepting a dilution of their holdings.

Corporate Express shares initially fell by as much as 9 per cent but recovered to trade 1.1 per cent lower at €8.02 in afternoon trade.

“Would we have done this deal if Staples hadn’t made their bid? The answer is absolutely, yes,” Peter Ventress, chief executive of Corporate Express, said. “This is the most compelling, the most logical merger in our industry.”

Mr Ventress said Corporate Express had spoken in the past to Lyreco about a merger and had started talking about the current deal “early this year”.

Staples made public its initial €7.25 per share approach to Corporate Express in late February and said it had made repeated attempts to discuss a takeover over the course of several months before that.

The US group upped its offer to €8 per share earlier this month, giving Corporate Express an enterprise value of €2.8bn, and went hostile earlier this week after management at the Dutch company refused to discuss the bid. Corporate Express has repeatedly said the offer from the US group “significantly undervalues” the company.

Mr Ventress said he believed the Lyreco deal represented a better fit than a link-up with Staples.

Eric Bigeard, chief executive of Lyreco, would head the combined group, with Mr Ventress becoming chief operating officer. Mr Bigeard, who has a large stake in Lyreco, would end up with 2.5 per cent of the enlarged company.

Mr Bigeard said the two were a “perfect fit” as Lyreco was number one in business-to-business office goods sales in Europe but had no presence in the US, where Corporate Express has half of its sales. Lyreco has a sales alliance with Staples in the US.

The deal puts Lyreco’s enterprise value at €1.7bn or 9.6 times 2007 earnings. Corporate Express said the takeover would enhance earnings per share from the first year and generate cumulative synergies of €100m in three years.