The two of the largest office-supply retailers in the U.S., Staples, Inc. (NASDAQ:SPLS) And Office Depot Inc (NASDAQ:ODP), are likely to join hands in near future as activist investor Starboard Value is increasing pressure on both the companies. The shares of both the retailers witnessed positive trading behavior after the announcement.
Starboard Value announced substantial stakes in both the office-supply companies including 5.1% stake in Staples and 9.9% stake in Office Depot. This is not the first time when the activist investor firm has pursued such a merger, as it pressurized Office Depot Inc (NASDAQ:ODP) to merger with OfficeMax last year. The firm is likely to adapt a similar strategy in this alliance and Jeffery Smith, CEO of Starboard, is confident about the approval from the Federal Trade Commission.
However, some analysts have their doubts about the approval and David Strasser, Janney Capital Markets, said,
“There are lots of reasons a deal would not pass Federal Trade Commission muster. But Starboard looks intent on getting both companies to the table. In a market where valuations are stretched, here are two companies with a catalyst, relatively reasonable valuations, and an activist with a track record of success.”
The combination of Staples, Inc. (NASDAQ:SPLS) And Office Depot Inc (NASDAQ:ODP) is likely to save up to $1.4 billion in synergies. Further, both the retail chains can cut down their number of stores without affecting their presence in the U.S. market.
The deal between Staples, Inc. (NASDAQ:SPLS) And Office Depot Inc (NASDAQ:ODP) is valued at $6 billion with a rate synergy equal to that of Office Depot’s acquisition of OfficeMax, according to Bradley Thomas, Keybanc Capital Markets.
The shares of Office Depot Inc (NASDAQ:ODP) soared in excess of 15% after the announcement closing at $7.79 on Friday. A similar trend was observed with the shares of Staples, Inc. (NASDAQ:SPLS) that have soared in excess of 11% after the announcement closing at $16.47 on Friday.
This article has been written by Prakash Pandey.