Starboard Value LP, an investment management firm and the largest shareholder of Office Depot Inc (NYSE:ODP), is urging the board of directors of the company to sell its 50 percent stake in its joint venture in Office Depot de Mexico.
In a letter addressed to the board of directors of Office Depot, Starboard Value LP emphasized that the actual value of Office Depot Mexico is not fully reflected in the stock price of the company.
The hedge fund, which owns 14.8 percent stake in office supply chain is encouraging the board of directors of Office Depot to explore the proposal of Grupo Gigante, S.A.B. de C.V.. (ADR) (PINK:GPGJY) to acquire its joint venture interest for $690.5 million, which expires today, February 28.
In 2008, Gigante offered to buy the remaining interest it does not already own in the joint venture, but the office supply chain rejected it.
The hedge fund urged the board of directors of the company to obtain a consent from OfficeMax immediately under its merger agreement regarding the sale of its interest in Office Depot de Mexico. Starboard Value believes that the sale of the joint venture will maximize value for shareholders and for the best interest of both Office Depot Inc (NYSE:ODP) and OfficeMax Incorporated (NYSE:OMX).
In addition, the hedge fund argued that the sale of the assets will make the balance sheet of the combined company stronger, and it would be helpful in executing their potential synergies. Even if the merger will not be completed; Starboard Value believes the sale will still be beneficial for Office Depot because it will strengthen its financial position.
The hedge fund wrote, “In our view, it is the Board’s fiduciary duty to monetize the JV Interest given the clear benefit to both Office Depot and OfficeMax as a combined company and Office Depot as a stand-alone company. We believe OfficeMax should be fully supportive of the Board exercising its fiduciary duties. We recognize that OfficeMax is potentially conflicted as a sale of the JV Interest, while beneficial to the combined company, would also be beneficial to Office Depot as a stand-alone business and, therefore, may strengthen a competitor should the merger not be completed.”
Furthermore, Starboard Value said if OfficeMax Incorporated (NYSE:OMX) will not support Office Depot Inc (NYSE:ODP)'s negotiation with Grupo Gigante, S.A.B. de C.V.. (ADR) (PINK:GPGJY) regarding the sale of the assets, it will consider its action unreasonable and potentially anti-competitive.