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