The Problem with a Staples Buyout (SPLS, BBY, ANF, ODP, OMX)

If a retail company gets in trouble or starts to lag on its growth and business model, it seems like the great response is always a chance of a private equity-led buyout. Reports have Best Buy Co. (NYSE: BBY) and Abercrombie & Fitch (NYSE: ANF) as the most likely retail acquisitions as of now, but the tired and lagging Staples Inc. (NASDAQ: SPLS) is also in the rumor mill of stock buyouts.

Fortune reported late on Thursday that private equity firms are interested in taking Staples private. The hope was enough that Staples saw its stock close up about 4% at $11.96 against a 52-week range of $10.57 to $16.93. There is just one problem. Staples has a market value of almost $8.2 billion, and that is while it is a depressed stock. CNBC is also talking the story up this morning.

At the start of 2010, the share price was north of $25 per share. It was not until after the first few months of 2011 that the Staples story really began to run into trouble and it quickly slid from $21 to $15. That 52-week low was seen only in recent weeks.

A buyer will have to pay a premium, and perhaps a significant premium, to buy Staples. Our guess would be a $15 minimum price just to keep shareholders from raiding the stores and stealing the goods to keep the company from stealing their money in a low-ball sale. Unfortunately, Staples may require $20 or higher just to make some shareholders whole in a buyout.

The long and short is that it will take more than $10 billion to acquire Staples. It could even take $13 billion or more. If private equity firms really want into the low-growth or no-growth office supplies space, maybe they should just focus on OfficeMax Inc. (NYSE: OMX) with its $616 million valuation or Office Depot Inc. (NYSE: ODP) with its $672 million valuation.

Anything is possible, and these very low rates may allow private equity groups to form “club deals” to pay $10 billion or more for buyouts. Still, there may not be any “Easy Button” for a private equity buyout of Staples.

JON C. OGG