Starboard Value LP, the activist hedge fund headed by Jeffrey Smith is planning to intensify its demand for a Staples-Office Depot merger.
Last December, Starboard Value boosted its stakes in Staples to 6% and Office Depot to approximately 10%. At the time, it had been reported that the activist hedge fund wanted the two office supply chain to combine their businesses.
Starboard Value is set to release a public letter on Tuesday urging Staples to takeover Office Depot, according to The New York Times DealBook based on information from people briefed on the situation.
“This merger makes too much sense to ignore. It is time for you to take action – engage advisers and work expeditiously with Office Depot to consummate a transaction,” writes Starboard Value in its impending letter.
Starboard Value notes in its forthcoming letter that the shares of Staples gained more than 50% since September when an analyst reported about the potential merger between the two office supply chains. The report ignited renewed speculations among investors regarding the issue.
The speculations regarding a potential merger between Staples and Office Depot was solidified when Starboard Value disclosed it acquired significant stakes in both companies.
Starboard Value is ready to launch a proxy fight for a board representation if Staples refuse to take action on its proposal. The activist hedge fund fought for a seats in the board of Office Depot last year. Office Depot eventually merged with Office Max.
“If it becomes clear to us that you have no intention of seriously pursuing this unique and highly attractive opportunity, it would be a clear sign that significant leadership change is needed at Staples,” says Starboard Value in its forthcoming letter.
Last week, Staples announced changes to its board and governance policies. The company said its independent director, Robert Nakasone will retire and it will appoint Robert Sulentic to take over the position.
Staples also announced the nomination of Paul Henri Ferrand for election to become a member of its board during its 2015 annual meeting. Ferrand is the vice president of U.S. sales and operations at Google. The company also indicated its intention to appoint an independent chairman upon the succession of its current chairman Ron Sargent.
The company has confirmed that it received a letter from Starboard Value urging a merger and stated:
Staples values constructive shareholder input and dialogue and regularly meets with its shareholders. The Company has met and spoken with Starboard Value on several occasions to discuss their ideas. The Company made clear that the Staples’ Board of Directors carefully considers all actions that would create shareholder value and is committed to taking actions that are in the best interests of all of the Company’s shareholders. The Company welcomes continued, constructive dialog with shareholders focused on enhancing the value of Staples.