Starboard increases stakes
When an activist investor takes an active interest in an industry that many believe is declining, financial markets usually take notice. Starboard Value LP is a prominent hedge fund. Recent company filings revealed that Starboard owned significant stakes in the first and second players in the office supplies market—Staples (SPLS) and Office Depot (ODP).
Starboard already owned stake in ODP. It increased the stake from 8.6% to 9.9%. It also acquired a 5.1% stake in SPLS.
Office supplies industry
SPLS and ODP are prominent retailers (XRT). As of December 17, they had market caps of $11.1 billion and $4.3 billion, respectively. They have customers like United Parcel Service (UPS). They’re supplied by companies like Xerox (XRX) and Microsoft (MSFT). SPLS is the market leader. It’s part of the PowerShares QQQ (QQQ) and the SPDR S&P 500 ETF (SPY).
Despite their size and large retail footprint, both companies have been plagued by falling revenues in recent years. Sales from office supplies—their core product category—have been declining. The decline is partly due to competitors’ denting market share. It’s also due to changes in technology. It’s reducing corporate requirements. As a result, their share prices suffered in recent years.
Starboard is thought of as an activist investor. It’s known for pushing wide-ranging changes in the companies it invests in. As a result, markets speculated that Starboard was planning to campaign for a combination between the two companies. The deal would generate positive synergies. Stock prices reacted. They spiked by 8.7% and 12.1% for SPLS and ODP, respectively, on December 11.
Synergies and valuations
This series will cover SPLS and ODP’s reinvention initiatives. It will also discuss how e-commerce is changing the industry. We’ll discuss Starboard’s track record of bringing about similar deals in the past. We’ll look at recent industry consolidation. We’ll also analyze the benefits and drawbacks from a potential merger between SPLS and ODP. This will include synergies, company valuations, and the hurdles that the combination would likely face.