Rumors came out over the weekend that Office Depot Inc. (NYSE: ODP) and OfficeMax Inc. (NYSE: OMX) finally are considering a long-awaited and long-speculated merger. This will not be an easy merger, but it is one that will make the office supplies business one that has a chance of being more profitable.
Staples Inc. (NASDAQ: SPLS) spent years growing, only to be challenged, along with Office Depot and OfficeMax, by Amazon.com Inc. (NASDAQ: AMZN) and superstores like Wal-Mart Stores Inc. (NYSE: WMT) and Costco Wholesale Corp. (NASDAQ: COST). Even the drugstore chains and other stores compete in the space to sell office products.
Merger terms remain unconfirmed. While the talks are called advanced, this merger makes plenty of sense. The question is how the merger will treat shareholders of the two companies. With Amazon challenging t0o many aspects of retail to count, a lot of this feels as though it would be an effort to avoid the same sort of victimization as at Best Buy Co. Inc. (NYSE: BBY). We would note that Best Buy even competes in this space.
In the new normal, shoppers can walk right into any retail store, pull out their smartphone and do price comparison shopping using the physical showroom as the virtual showroom. If OfficeMax and Office Depot combine, then there effectively will only be two major office supply retail destinations. As of now there are three, along with a whole slew of one-off shops.
Again, the terms have not been disclosed. Nor has it been shown how the shareholders of the two companies will be rewarded. That being said, this is one of those mergers that should occur in an industry where the race has been one with a finish line that looks like net zero margins.
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