Staples Merger Offers Chance to Avoid RadioShack Fate: Real M&A
2015-02-03 20:17:32.964 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- A merger of Staples Inc. and Office Depot
Inc. may help them weather the competition from online and big-
box retailers in a way that RadioShack Corp. couldn’t.
The three companies were all hit hard in the past decade by
discount-offering giants such as Amazon.com Inc. and Wal-Mart
Stores Inc. Their fates diverged this week. RadioShack is
preparing to file for bankruptcy protection, while the other two
-- in a less dire situation -- are considering combining.
Staples and Office Depot shares are trading Tuesday at
prices they haven’t reached in years as investors show support
for their potential merger, which would consolidate the No. 1
and 2 office-supply chains. Analysts estimate $1 billion to $2
billion of costs could be cut through the deal, which may give
the combined company some room to lower the prices of its
products in hopes of drawing in shoppers.
“From a financial standpoint and from a competition
standpoint it makes sense,” Joseph Feldman, an analyst for
Telsey Advisory Group in New York, said in a phone interview.
“Shareholders on both sides are cheering the deal. It probably
would be a good thing to see happen for the industry and for
both companies.”
Approval Odds
The question is whether the merger would secure approval
from antitrust regulators, though analysts are leaning toward
the idea that it can. Office Depot purchased OfficeMax Inc. in
2013, so a subsequent deal between Office Depot and Staples
would leave just one major office-supply chain.
The companies can argue that the competition is far broader
and now includes Amazon, Costco Wholesale Corp., Wal-Mart and
Target Corp. That’s something the U.S. Federal Trade Commission
-- the same agency that blocked Staples from buying Office Depot
in 1997 -- noted in its approval of the OfficeMax acquisition.
“Our decision highlights that yesterday’s market dynamics
may be very different from the market dynamics of today,” the
FTC said in its closing letter about the Office Depot-OfficeMax
transaction in November 2013.
That analysis “doesn’t leave the commission a lot of
room” to challenge a Staples merger today, said Morris Bloom,
an antitrust lawyer at Axinn, Veltrop, & Harkrider LLP in
Washington.
“The fact this merger is of the remaining two office-
supplies stores should not lead to anticompetitive effects
because consumers have more choices than the super-supply
stores,” said Bloom, a former FTC lawyer.
Activist Push
Starboard Value, which has stakes in both Staples and
Office Depot, has been urging the retailers to combine, which
has helped lift the shares over the past couple of months.
The FTC’s decision to allow Office Depot and OfficeMax to
combine “probably encouraged Starboard to push for the
merger,” said Chris Pultz, a portfolio manager at Kellner
Capital, an event-driven investment firm in New York. “They
will probably get a second request from the FTC, but I find it
hard to believe that they would have a case to block the
transaction.”
Becoming one company isn’t a perfect long-term solution.
Even though their outlook isn’t nearly as grim as RadioShack’s,
office and school supplies are increasingly a commodity business
and it will still be difficult to match competitors’ low prices
without eroding earnings, said Brian Yarbrough, an analyst for
Edward Jones & Co. in St. Louis.
In the most recent back-to-school shopping season, Staples’
school supplies cost 53 percent more than an identical basket of
goods at Wal-Mart and Target, according to a study by Bloomberg
Intelligence in August.
Deal Gains
Shareholders would benefit from a deal because it would
give a pop to Office Depot’s stock price and there would be
synergies for Staples, Yarbrough said.
“But in the longer run, I just don’t see how this combined
company is any better off,” he said. “Starboard cares about
one thing: this deal going through. Five years down the road
they’re not going to be anywhere near this company, they’ll be
long gone.”
And don’t forget what happened after Sears Holdings Corp.
and Kmart merged in 2005. The deal was an attempt to stem
falling sales and fend off Wal-Mart. Since that transaction
closed, Sears has lost three-quarters of its value, continued to
suffer revenue declines, shut stores, eliminated jobs and sold
off assets to raise money as it burns through cash.
“Merging two bad retailers in a tough environment doesn’t
make one good retailer,” Yarbrough said.
For Related News and Information:
Staples Would Get 60% Boost From Office Depot Takeover: Real M&A
Staples, Office Depot Surge on Report of Merger Discussions
RadioShack Said to Discuss Shutdown as Part of Sprint Deal
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger calculator: MRGC <GO>
--With assistance from David McLaughlin in Washington.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-02-03 20:17:32.964 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
(Bloomberg) -- A merger of Staples Inc. and Office Depot
Inc. may help them weather the competition from online and big-
box retailers in a way that RadioShack Corp. couldn’t.
The three companies were all hit hard in the past decade by
discount-offering giants such as Amazon.com Inc. and Wal-Mart
Stores Inc. Their fates diverged this week. RadioShack is
preparing to file for bankruptcy protection, while the other two
-- in a less dire situation -- are considering combining.
Staples and Office Depot shares are trading Tuesday at
prices they haven’t reached in years as investors show support
for their potential merger, which would consolidate the No. 1
and 2 office-supply chains. Analysts estimate $1 billion to $2
billion of costs could be cut through the deal, which may give
the combined company some room to lower the prices of its
products in hopes of drawing in shoppers.
“From a financial standpoint and from a competition
standpoint it makes sense,” Joseph Feldman, an analyst for
Telsey Advisory Group in New York, said in a phone interview.
“Shareholders on both sides are cheering the deal. It probably
would be a good thing to see happen for the industry and for
both companies.”
Approval Odds
The question is whether the merger would secure approval
from antitrust regulators, though analysts are leaning toward
the idea that it can. Office Depot purchased OfficeMax Inc. in
2013, so a subsequent deal between Office Depot and Staples
would leave just one major office-supply chain.
The companies can argue that the competition is far broader
and now includes Amazon, Costco Wholesale Corp., Wal-Mart and
Target Corp. That’s something the U.S. Federal Trade Commission
-- the same agency that blocked Staples from buying Office Depot
in 1997 -- noted in its approval of the OfficeMax acquisition.
“Our decision highlights that yesterday’s market dynamics
may be very different from the market dynamics of today,” the
FTC said in its closing letter about the Office Depot-OfficeMax
transaction in November 2013.
That analysis “doesn’t leave the commission a lot of
room” to challenge a Staples merger today, said Morris Bloom,
an antitrust lawyer at Axinn, Veltrop, & Harkrider LLP in
Washington.
“The fact this merger is of the remaining two office-
supplies stores should not lead to anticompetitive effects
because consumers have more choices than the super-supply
stores,” said Bloom, a former FTC lawyer.
Activist Push
Starboard Value, which has stakes in both Staples and
Office Depot, has been urging the retailers to combine, which
has helped lift the shares over the past couple of months.
The FTC’s decision to allow Office Depot and OfficeMax to
combine “probably encouraged Starboard to push for the
merger,” said Chris Pultz, a portfolio manager at Kellner
Capital, an event-driven investment firm in New York. “They
will probably get a second request from the FTC, but I find it
hard to believe that they would have a case to block the
transaction.”
Becoming one company isn’t a perfect long-term solution.
Even though their outlook isn’t nearly as grim as RadioShack’s,
office and school supplies are increasingly a commodity business
and it will still be difficult to match competitors’ low prices
without eroding earnings, said Brian Yarbrough, an analyst for
Edward Jones & Co. in St. Louis.
In the most recent back-to-school shopping season, Staples’
school supplies cost 53 percent more than an identical basket of
goods at Wal-Mart and Target, according to a study by Bloomberg
Intelligence in August.
Deal Gains
Shareholders would benefit from a deal because it would
give a pop to Office Depot’s stock price and there would be
synergies for Staples, Yarbrough said.
“But in the longer run, I just don’t see how this combined
company is any better off,” he said. “Starboard cares about
one thing: this deal going through. Five years down the road
they’re not going to be anywhere near this company, they’ll be
long gone.”
And don’t forget what happened after Sears Holdings Corp.
and Kmart merged in 2005. The deal was an attempt to stem
falling sales and fend off Wal-Mart. Since that transaction
closed, Sears has lost three-quarters of its value, continued to
suffer revenue declines, shut stores, eliminated jobs and sold
off assets to raise money as it burns through cash.
“Merging two bad retailers in a tough environment doesn’t
make one good retailer,” Yarbrough said.
For Related News and Information:
Staples Would Get 60% Boost From Office Depot Takeover: Real M&A
Staples, Office Depot Surge on Report of Merger Discussions
RadioShack Said to Discuss Shutdown as Part of Sprint Deal
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
Merger calculator: MRGC <GO>
--With assistance from David McLaughlin in Washington.
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman