According to a December 10th article in the Wall Street Journal, sources are reporting that activist fund Starboard Value LP has recently built up 6% stake in Staples, Inc. (NASDAQ:SPLS) and increased its position in Office Depot Inc. to close to 10%.Shares of both companies are surging, up double digits in pre-market trading today.
Starboard has experience in the office-supply sector as well as an understanding of possible deal dynamics. Last year the New York hedge fund tussled for board representation at Office Depot Inc (NASDAQ:ODP), which ended up merging with Office Max. Starboard ended up with three out of 11 seats on the Office Depot board.
Consolidation the end game for Starboard Value?
Analysts say that Starboard isn’t likely to detail any changes it might seek as a major shareholder. That said, the industry has been under pressure for some time now to consolidate to compete with rivals such as Amazon.com Inc., Wal-Mart and Target that offer broad selections of products including office supplies at a discount.
Carlson Capital's Black Diamond Arbitrage Partners fund added 1.3% net fees in the first quarter of 2021, according to a copy of the firm's March 2021 investor update, which ValueWalk has been able to review. Q1 2021 hedge fund letters, conferences and more At the end of the quarter, merger arbitrage investments represented 89% of Read More
Any move to combine Office Depot and Staples, Inc. (NASDAQ:SPLS) could draw scrutiny from antitrust regulators given the two firms are the last remaining major office supply retailers.
The Federal Trade Commission won a court ruling blocking an effort by Staples to combine with Office Depot back in 1997. But the industry landscape and political climate are very different today, and the FTC let Office Depot merge with OfficeMax less than two years ago without forcing any divestments.
Recent performance of Staples and Office Depot
Staples’ sales have fallen this year, and the company has been closing stores as it looks to reduce costs in the current highly competitive environment. The firm is also trying to expand its offerings and is making an aggressive move into online retailing.
Office Depot’s results for the third quarter came in above consensus Wall Street expectations and the company upped its guidance for the year. The firm also has been shutting stores and lowering costs as it integrates OfficeMax.
Credit Suisse noted that as of September the two office supply chains still have a combined 3,000 locations, nearly twice as many as most analysts consider ideal. The CS report suggested a deal between Staples and Office Depot could lead to more than $1.4 billion in annual cost savings by 2017. Both stocks jumped notably when the report was released, a sign that investors believe the merger is a real possibility.
Of note, Staples, Inc. (NASDAQ:SPLS) shares are off around 7% on the year, while Office Depot shares have moved up 27% so far in 2014.