Of note, Staples is the big player in the office supply industry, with a market value of around $11 billion. Office Depot, which merged with OfficeMax a year and change ago, is valued around $4 billion. While the talks are “advanced”, there is no guarantee the sides will sign off on a final deal.
Antitrust concerns for Staples – Office Depot deal
Given the two firms combined have more than 4,000 stores and annual sales topping $35 billion, a merger of the two would get a close review from antitrust regulators, who sued to block the same proposed merger back in 1997.
Several analysts have noted, however, that the retail landscape has evolved a lot in the last 18 years, pointing to the rise of online retailers like Amazon.com and increased competition from big-box chains like Wal-Mart and Target, which all sell office supplies today. When regulators approved the Office Depot and OfficeMax merger back in 2013, they noted that consumers have many choices of where to buy office products.
“The current competitive dynamics are very different,” the Federal Trade Commission commented in its 2013 review. “The Commission’s investigation shows that today’s market for the sale of consumable office supplies is broader” than it was in 1997.
Pressure from activists could be forcing merger talks
A merger would certainly be good news for activist investor hedge fund Starboard Value, which owns close to 6% of Staples and around 10% of Office Depot. Moreover, just last month Starboard Value advised the firms to consider a merger. In an open letter sent to Staples CEO Ronald Sargent, the hedge fund said the cost savings from a merger had the potential to double the combined company’s operating profit.
Also of note, Starboard had dropped several hints it might undertake a proxy fight for board seats at Staples if the company didn’t pursue a merger. The nomination period for directors at Staples opened this week and ends in March.