Dive Brief:
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Hedge fund and activist investor Starboard Value is urging the merger of office supply retailers Staples and Office Depot, sources have told CNBC.
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Starboard now has a 5.1% stake in Staples and has increased its stake in Office Depot to 10%, according to filings with the Securities and Exchange Commission.
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The retailers attempted to merge in 1997, but the deal couldn’t pass muster with the Federal Trade Commission due to antitrust concerns.
Dive Insight:
Earlier this year, Credit Suisse analyst Gary Balter said that the rival office supply retailers should merge and that, because of the consolidation in the business over the past two decades, a merger would be okay with FTC this time around. That sent the stock of both companies soaring; so it seems Wall Street likes this idea and it makes sense to a lot of people. The merger of Office Depot and OfficeMax last year saw smooth sailing, although Office Depot is still struggling post merger. Staples has also had to work hard in the office-supply retail environment, revamping its e-commerce and closing stores.
Such a merger “makes significant financial and operational sense,” Balter wrote in a note to investors Sept. 2. It could cut costs by $1.44 billion and double, or better than double, a merged company’s operating profit by 2017, according to Balter.
But such a deal may not be the slam dunk it seems, says Thompson Reuters “Breakingviews” writer Quentin Webb, who says the FTC may not be so amenable, and that Staples may struggle to pay for such a deal.
