Hedge fund fuels speculation about Staples-Office Depot merger
The mere speculation of a merger can boost the value of a company, and add luster to its market price. Last week, a suspected merger between two of America's largest office suppliers, Office Depot and Staples, encouraged Starboard Value (described by Barron's as an "activist hedge fund") to invest in both companies, bringing its stakes to 9.9 percent of Office Depot and 5.1 of Staples.
As a result, the price of Office Depot stock soared nearly 12 percent on Friday, generating new interest in a company often seen as a lagging competitor in the supplies market. The investment in both companies signifies the potential of a merger, as the two industry giants would seize an unparalleled footprint if they joined forces. Starboard had previously driven the combination of Office Depot and Office Max earlier this year, when revenues on both sides were in a decline.
One of the major hurdles Office Depot faced this year and will continue clearing through 2016 is an overlap in locations. Zacks, a market research publication, reported that upwards of 400 storefronts would close in order to consolidate reach in target areas. The move may lead to $700 million in total synergies by the end of 2016, demonstrating the upside of mergers in the market segment.
However, a Staples-Office Depot merger wouldn't come without scrutiny. In 1997, the Federal Trade Commission nixed plans for the companies to merge, due to antitrust regulations designed to keep markets competitive. In the subsequent years, other big-chain office supply companies have gone by the wayside, leaving only Office Depot and Staples at the head of the pack. A merger, critics say, could vacuum all the oxygen for distant rivals. However, the sector has shifted with the rise of online retailers.
As analysts watch the companies, a major acquisition strategy question may be whose pen to ink the deal with.