December 11, 2014
Will an activist investor force Staples/Office Depot merger?
When Gary Balter, an analyst with Credit Suisse, suggested several months ago that a merger between Office Depot and Staples makes sense, many people balked at the idea. After all, a merger between the last two remaining national office supply chains would face intense regulatory scrutiny. It also would bring together two companies already struggling to remain competitive in a business where intense competition from rivals, ranging from Amazon.com to Walmart, is cutting into foot traffic and same-store sales.
Now comes a Wall Street Journal report that Starboard Value has accumulated a six percent stake in Staples while also raising its share of Office Depot’s stock to 10 percent. While the investment firm has not yet publicly signaled what it plans to do, it’s easy to speculate.
Fortune labeled Jeff Smith, co-founder and CEO of Starboard, as "the investor CEOs fear most." The article pointed to how Starboard was able to take effective control of Darden Restaurants (Olive Garden, Longhorn Steakhouse) in October despite owning fewer than 10 percent of the company’s shares. Mr. Smith led a proxy fight and won. He became chairman of the company and replaced its entire board of directors.
Staples reported that North American same-store sales during the third quarter were down four percent as traffic declined by a like amount and order sizes were flat year-over-year. On Staples’ earnings conference call last month, CEO Ron Sargent, said the chain expected to close 170 stores by year’s end versus the 140 it had previously announced.
On Office Depot’s earnings call last month, CEO Roland Smith declared the first year following its merger with OfficeMax to be "a huge success." While sales declined four percent in the most recent quarter, half of that was due to closing underperforming stores. On the upside, sales were more profitable in the third quarter and Office Depot raised its outlook for the full year.
- Starboard Value Takes Roughly 6% Stake in Staples – The Wall Street Journal (sub. required)
- Starboard Value’s Jeff Smith: The investor CEOs fear most – Fortune
- Starboard Said to Amass a Big Stake in Staples – The New York Times (tiered sub.)
- Starboard Value buys 6 pct in Staples, raises Office Depot stake – Reuters
- Starboard Value LP
- Staples CEO Ron Sargent on Q3 2014 Results (Earnings Call Transcript) – Seeking Alpha (reg. required)
- Office Depot’s CEO Roland Smith on Q3 Results (Earnings Call Transcript) – Seeking Alpha
- Should Staples acquire Office Depot? – RetailWire
BrainTrust
Recent Discussions
Discussion Questions
Do you think a merger between Staples and Office Depot is inevitable at this point? Would a merger result in a stronger or weaker company overall?
Poll
While CEO Jeffrey Smith might be a catalyst, it will be the consumer who decides. The consumer “votes” in terms of traffic and sales already reflect downward trends which indicate a merger is inevitable.
In days past a stronger economy might have made a difference. In today’s omni-channel world, shoppers are increasingly shopping any time and everywhere for EVERYTHING!
Category specialists are just as vulnerable as any other retailer. The key to long-term retail survival is an “endless aisle” with superior integration of online and store experience.
No—I think this would run afoul of the regulators.
A merger between Staples and Office Depot may not be inevitable but it may turn out to be the best course of action. The retail office business format Staples created has seen much of its business migrate to other retailers and to online. While we still use them it is partly because we have all three (Office Depot, Office Max (still open) and Staples) all within a few miles of our office. I have found that while I miss the full-size version of Office Depot, I still like the customer service in their local store better than the alternatives.
A successful merger could result in a stronger single entity. I used “successful” as an adjective because many such mergers get bogged down in the merging process whether they are mergers of airlines or retailers. It took strong egos to build some of the companies and those strong egos often make the merging process overly painful and less successful than it could be.
This sounds like a “Free Willie” story only even more sad, and very true to thousands more, as in investors and employees. I am not so sure there is enough demand to save these market plans for a few more years. Even if they added RadioShack and Sears into the mix the future for more of the same in the face of change will remain bleak.
This is really a trick question: the real question is “would they be stronger apart, or together…with a busybody at the helm?” I vote for the former.
The issue appears to be the category. Both reported 4% decline in sales. In a declining market, only one will survive long term. These retailers are category killers for the old mom and pop stationary store. I think what we are seeing is a market shift with other retailer formats and e-commerce cannibalizing sales. This is not unlike what happened with department stores and RadioShack. For example, Staples and Best Buy both sell computers, printers, routers, etc.
Merging these companies will help longer-term survival, but not necessarily create a stronger company as competition does not care about mergers.
More Discussions
How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…Should Costco Be Opening Members-Only Gas Stations?
Is this the right move for the warehouse club?As Boomers ‘Age Out of Peak Purchasing,’ How Can National Brands Retain Interest With Gen Z?
According to a recent First Insight study titled “Is Gen Z Still Choosing Your Brand,” while…
While CEO Jeffrey Smith might be a catalyst, it will be the consumer who decides. The consumer “votes” in terms of traffic and sales already reflect downward trends which indicate a merger is inevitable.
In days past a stronger economy might have made a difference. In today’s omni-channel world, shoppers are increasingly shopping any time and everywhere for EVERYTHING!
Category specialists are just as vulnerable as any other retailer. The key to long-term retail survival is an “endless aisle” with superior integration of online and store experience.
No—I think this would run afoul of the regulators.
A merger between Staples and Office Depot may not be inevitable but it may turn out to be the best course of action. The retail office business format Staples created has seen much of its business migrate to other retailers and to online. While we still use them it is partly because we have all three (Office Depot, Office Max (still open) and Staples) all within a few miles of our office. I have found that while I miss the full-size version of Office Depot, I still like the customer service in their local store better than the alternatives.
A successful merger could result in a stronger single entity. I used “successful” as an adjective because many such mergers get bogged down in the merging process whether they are mergers of airlines or retailers. It took strong egos to build some of the companies and those strong egos often make the merging process overly painful and less successful than it could be.
This sounds like a “Free Willie” story only even more sad, and very true to thousands more, as in investors and employees. I am not so sure there is enough demand to save these market plans for a few more years. Even if they added RadioShack and Sears into the mix the future for more of the same in the face of change will remain bleak.
This is really a trick question: the real question is “would they be stronger apart, or together…with a busybody at the helm?” I vote for the former.
The issue appears to be the category. Both reported 4% decline in sales. In a declining market, only one will survive long term. These retailers are category killers for the old mom and pop stationary store. I think what we are seeing is a market shift with other retailer formats and e-commerce cannibalizing sales. This is not unlike what happened with department stores and RadioShack. For example, Staples and Best Buy both sell computers, printers, routers, etc.
Merging these companies will help longer-term survival, but not necessarily create a stronger company as competition does not care about mergers.