The stock value of Staples, Inc. (NASDAQ:SPLS) surged by more than 4 percent to $12.49 per share during the early morning trading today, after Fortune reported that some private-equity companies, including Bain Capital LLC are interested in acquiring the largest office supply retailer in the United States.
The report from Fortune cited unidentified sources, saying that investors entered preliminary discussions to take-over Staples. The private equity firms are expected to submit their formal offer to take over the office supply retailer, although it would take them several months to arrange financing. In addition, the private equity firms do not want to face PR problems in acquiring the Staples, Inc. (NASDAQ:SPLS) during the campaign period, due to the relationship of Republican Presidential candidate Mitt Romney with Bain Capital and Staples. Romney co-founded Bain Capital, which was one of the earliest investors in Staples. He served as one of the board of directors of the office supply retailer.
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Staples market capitalization is around $8.16 billion. Its stock value declined by 14 percent during the current fiscal year. During the previous two quarters, the Framingham, Massachusetts-based office supply retailer reported weak sales performance. Its second quarter sales this year declined by 6 percent to $5.5 billion, while its diluted earnings per share dropped by 28 percent, from 25 cents per share to 18 cents per share. The weak sales trends in its core office supplies and computers, particularly in North America, Europe, and Australia, affected the company’s financial performance.
Staples, Inc. (NASDAQ:SPLS) suffered a 2 percent declined in comparable store sales during the second quarter of 2012 in North America, while its international operations dropped by 18 percent in U.S. dollars, to $1.1 billion.
In his previous statement, Ron Sargent, chairman and chief executive officer of Staples, said the company was developing a plan to reallocate its resources, take advantage of its growth opportunities and to drive increased cost savings.
A report from Bloomberg cited a comment from R.J. Hottovy, analyst at Morningstar, Inc. (NASDAQ:MORN), regarding the private equity firm’s interest to acquire Staples. Hottovy said, “It’s a low-probability event, given the size of the deal.” According to him, Staples remains an industry leader and it is the world’s second largest online retailer next to Amazon.com, Inc. (NASDAQ:AMZN). He cited that Staples’ online and delivery business has value, and the assets are attractive buyouts for investors.
On the other hand, a report from the Boston Business Journal cited a note released by Anthony Chukumba, analyst from BB&T Corporation (NYSE:BBT), which said that Staples, Inc. (NASDAQ:SPLS) is attractive for a leveraged buyout at $17 per share, a 42 percent premium of the company’s $11.96 closing stock price on Thursday. Chukumba emphasized that Staples is an industry leader with an established brand name and management team, strong free cash flow, and an underleveraged balance sheet.
Below is an LBO model of Staples from Morgan Stanley Research: