Would Regulators Allow a Combined Staples and Office Depot?

Retail

Published: February 3, 2015 10:10 am

Last Updated: February 3, 2015 10:12 am

It seems that the rumors circulating around a Staples Inc. (NASDAQ: SPLS) and Office Depot Inc. (NASDAQ: ODP) merger are not unfounded. The Wall Street Journal reported early Tuesday morning that the companies were in advanced talks over a potential merger.

For the sake of comparison, Staples has a market cap of $11 billion and Office Depot has a total market cap of $4 billion.

A major positive for this merger would be that the new combined company would be able to better compete with the likes of Amazon.com Inc. (NASDAQ: AMZN) and Wal-Mart Stores Inc. (NYSE: WMT).

Previously, activist investor firm Starboard Value called for the merger of these office retailing giants in an open letter sent to The Wall Street Journal. The letter detailed that 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 was a clear sign that significant leadership change would be needed at Staples.

Starboard holds a 10% stake in Office Depot and a 6% stake in Staples.

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It is worth noting that, should the companies decide to pursue this deal, they might face headwinds from antitrust regulators. It is also worth noting that Staples attempted to buy Office Depot in 1997 but regulators would not allow this purchase due to antitrust concerns.

In 2013, the FTC approved Office Depot’s $976 million acquisition of OfficeMax without having to take a closer look or make the office retailer close any stores.

Shares of Staples were up more than 12% to $19.25 in Tuesday morning trading. The stock has a consensus analyst price target of $15.84 and a 52-week trading range of $10.70 to $18.33.

Shares of Office Depot were up 11% to $9.22. The consensus analyst price target is $8.28, and the 52-week trading range of $3.84 is $8.91.

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