What Starboard Value Sees in Staples and Office Depot

Retail

Published: January 20, 2015 1:50 pm

Last Updated: January 20, 2015 5:52 pm

Starboard Value has long called for the merger of office retailing giants Staples Inc. (NASDAQ: SPLS) and Office Depot Inc. (NASDAQ: ODP). The firm sent an open letter to The Wall Street Journal detailing how the combination of the two would double operating profits, among other benefits.

In the letter, Starboard claims to have met with management teams from both companies. However, the firm makes a backhanded comment when it said that if Staples was not serious about pursuing the transaction, that this was a clear sign that significant leadership change would be needed at Staples.

Regarding potential leadership change, the company had previously made changes to its board, adding an executive from Google as a new director last week. Staples also stated that it is moving in the direction of separating the chairman and chief executive roles.

For a little background, Starboard Value holds a 10% stake Office Depot and a 6% stake in Staples.

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Staples issued a statement regarding the letter it received from Starboard Value, late Tuesday morning:

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.

Shares of Staples were down almost 2% at $17.03 as of midday in Tuesday’s trading. The stock has a consensus analyst price target of $14.62 and a 52-week trading range of $10.70 to $18.33. The market cap is almost $11 billion.

Shares of Office Depot fell 1% to $7.95. The consensus price target is $7.93, and the 52-week trading range is$3.84 to $8.91. The market cap is around $4 billion.

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