Staples Would Get 60% Boost From Office Depot Takeover: Real M&A
2014-12-11 20:35:21.907 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
Dec. 11 (Bloomberg) -- Staples Inc. has a chance to
increase next year’s earnings by at least 60 percent through an
acquisition of Office Depot Inc., the only other major U.S.
office-supplies chain still in business.
With analysts estimating that more than $1 billion of costs
could be cut by combining the struggling retailers, earnings per
share in the 2015 calendar year would rise about 60 percent in
an all-stock merger, according to data compiled by Bloomberg. If
Staples were to pay entirely with cash or debt, the accretion
would be twice that, while a mix of cash and stock would yield
something in between, the data show.
The synergies, or redundant expenses, are derived from
Staples and Office Depot having stores in overlapping areas.
There are more than 3,000 North American locations between the
two of them, which could be reduced by 30 percent, according to
Credit Suisse Group AG’s Gary Balter, who forecast $302,000 of
synergies per closed store in a September report.
“It definitely makes sense strategically because the
office space is over-stored and this would be a way to continue
to close more stores,” Brian Yarbrough, a St. Louis-based
analyst at Edward Jones & Co., said in a phone interview. “It’d
probably be a more viable long-term business plan.”
Activist Investor
Starboard Value, the activist investor that successfully
pushed for the merger of Office Depot and OfficeMax Inc. last
year, disclosed a 5.1 percent stake in Staples today and
increased its holding in Office Depot to 9.9 percent. It plans
to push the companies to merge and cut overlapping expenses in
an industry with too many stores, according to a person familiar
with the matter.
While most analysts agree a deal makes sense, some
including Yarbrough are concerned that regulators might block a
combination. The U.S. Federal Trade Commission last year allowed
the Office Depot-OfficeMax transaction, which brought together
the country’s No. 2 and No. 3 office-supply retailers. The FTC
determined then that online retailing ensured competition in the
market.
It may be tougher to argue for further consolidation in
which Staples, the No. 1 chain, is the only one left, Yarbrough
said.
“This is an industry that’s in major decline, it’s under
severe competitive pressures and there’s not a lot of growth
here, so it’s a way you could create some value,” he said.
“But I’m still not sure this can pass the antitrust.”
‘Blessed’ Deal
Balter, a New York-based analyst for Credit Suisse,
believes it can. He cites the wording in the FTC’s decision to
approve last year’s merger, in which it explained how the
industry has changed with competition coming from mass merchants
such as Wal-Mart Stores Inc. and Target Corp. as well as
Internet retailer Amazon.com Inc.
“We believe this is a highly synergistic combination that
has been essentially blessed by the FTC’s wording from the
ODP/OMX deal, and can finally position the remaining player to
compete with all the outside threats in retail, online and in
serving corporate customers,” Balter wrote in his September
analysis of a potential combination.
Office Depot shares rose 27 percent since it closed the
OfficeMax transaction a year ago through yesterday. Staples
shares were down 7.7 percent over that span.
Today, both surged, with Office Depot gaining 12 percent as
of 3:34 p.m. New York time, while Staples climbed 8 percent to
its highest price in a year.
The accretion estimates assume Staples would pay a typical
takeover premium of 30 percent, which equates to almost $10 a
share. An actual offer, should one emerge, may be higher or
lower than that.
Slumping Sales
Both chains have been experiencing declining revenue and
shutting stores to reduce costs. Office Depot’s same-store sales
fell or were flat every quarter since 2006. At Staples, they
slipped at least 4 percent in each of the past four periods.
Office Depot says that synergies from integrating OfficeMax
are more than offsetting the continued pressure on sales. During
an earnings call last month, the company said it increased its
projection for synergies and restructuring benefits to $840
million annually by the end of 2016.
For Related News and Information:
Starboard Acquires Staples Stake, Fueling Merger Speculation
Merger Calculator: MRGC <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
--With assistance from Erik Schatzker in New York.
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
2014-12-11 20:35:21.907 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Tara Lachapelle
Dec. 11 (Bloomberg) -- Staples Inc. has a chance to
increase next year’s earnings by at least 60 percent through an
acquisition of Office Depot Inc., the only other major U.S.
office-supplies chain still in business.
With analysts estimating that more than $1 billion of costs
could be cut by combining the struggling retailers, earnings per
share in the 2015 calendar year would rise about 60 percent in
an all-stock merger, according to data compiled by Bloomberg. If
Staples were to pay entirely with cash or debt, the accretion
would be twice that, while a mix of cash and stock would yield
something in between, the data show.
The synergies, or redundant expenses, are derived from
Staples and Office Depot having stores in overlapping areas.
There are more than 3,000 North American locations between the
two of them, which could be reduced by 30 percent, according to
Credit Suisse Group AG’s Gary Balter, who forecast $302,000 of
synergies per closed store in a September report.
“It definitely makes sense strategically because the
office space is over-stored and this would be a way to continue
to close more stores,” Brian Yarbrough, a St. Louis-based
analyst at Edward Jones & Co., said in a phone interview. “It’d
probably be a more viable long-term business plan.”
Activist Investor
Starboard Value, the activist investor that successfully
pushed for the merger of Office Depot and OfficeMax Inc. last
year, disclosed a 5.1 percent stake in Staples today and
increased its holding in Office Depot to 9.9 percent. It plans
to push the companies to merge and cut overlapping expenses in
an industry with too many stores, according to a person familiar
with the matter.
While most analysts agree a deal makes sense, some
including Yarbrough are concerned that regulators might block a
combination. The U.S. Federal Trade Commission last year allowed
the Office Depot-OfficeMax transaction, which brought together
the country’s No. 2 and No. 3 office-supply retailers. The FTC
determined then that online retailing ensured competition in the
market.
It may be tougher to argue for further consolidation in
which Staples, the No. 1 chain, is the only one left, Yarbrough
said.
“This is an industry that’s in major decline, it’s under
severe competitive pressures and there’s not a lot of growth
here, so it’s a way you could create some value,” he said.
“But I’m still not sure this can pass the antitrust.”
‘Blessed’ Deal
Balter, a New York-based analyst for Credit Suisse,
believes it can. He cites the wording in the FTC’s decision to
approve last year’s merger, in which it explained how the
industry has changed with competition coming from mass merchants
such as Wal-Mart Stores Inc. and Target Corp. as well as
Internet retailer Amazon.com Inc.
“We believe this is a highly synergistic combination that
has been essentially blessed by the FTC’s wording from the
ODP/OMX deal, and can finally position the remaining player to
compete with all the outside threats in retail, online and in
serving corporate customers,” Balter wrote in his September
analysis of a potential combination.
Office Depot shares rose 27 percent since it closed the
OfficeMax transaction a year ago through yesterday. Staples
shares were down 7.7 percent over that span.
Today, both surged, with Office Depot gaining 12 percent as
of 3:34 p.m. New York time, while Staples climbed 8 percent to
its highest price in a year.
The accretion estimates assume Staples would pay a typical
takeover premium of 30 percent, which equates to almost $10 a
share. An actual offer, should one emerge, may be higher or
lower than that.
Slumping Sales
Both chains have been experiencing declining revenue and
shutting stores to reduce costs. Office Depot’s same-store sales
fell or were flat every quarter since 2006. At Staples, they
slipped at least 4 percent in each of the past four periods.
Office Depot says that synergies from integrating OfficeMax
are more than offsetting the continued pressure on sales. During
an earnings call last month, the company said it increased its
projection for synergies and restructuring benefits to $840
million annually by the end of 2016.
For Related News and Information:
Starboard Acquires Staples Stake, Fueling Merger Speculation
Merger Calculator: MRGC <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
--With assistance from Erik Schatzker in New York.
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