Staples has been the target of activist investor Starboard Value for a while, with the firm urging the office supplies chain to broaden its horizons and acquire Office Depot (NYSE: ODP). It looks like this will finally come to fruition.
Staples recently announced that it would be acquiring Office Depot for $11 a share. The transaction is valued at $6.3 billion and would combine two of the largest office supply store chains in the United States. Office Depot shareholders will get $7.25 in cash and 0.2188 of a share of Staples stock at closing.
As a result, Starboard issued a new letter to the Staples board of directors commending the company and management for negotiating and announcing the acquisition of Office Depot. What stands out most is that Starboard claims that management’s current cost-benefit assessment of post-merger synergies is conservative. Starboard believes those synergies could be over $2 billion, and Staples could ultimately be worth $32 to $37 per share once the Office Depot acquisition has closed and once those synergies can be realized.
What investors will want to consider is that Staples has risen more than 50% from its 12-month lows. Office Depot is now up close to 150% from its lows. Is it fair to assess that another 100% gain could be seen for the combined company? It seems more than aggressive on the surface. Still, Starboard outlines the how and why they get to such a large valuation ahead.
Just a day ahead of the earnings report on Friday, the investment bank B. Riley reiterated a Neutral rating with a price target of $14. The price target actually implies a downside of 15% from current prices. However the consensus analyst price target of $17.44 implies an upside of 5.8%, which pales in comparison to Starboard’s projection of a full 100% increase.
Shares of Staples were down 0.6% at $16.49 Thursday afternoon. The consensus analyst price target is $17.44, and the 52-week trading range is $10.70 to $19.40.
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