Valuing Office Depot And Staples—Including Merger Synergies



Cost synergies

As we mentioned in Part 14 of this series, the estimated cost synergies from a merger between Staples (SLPS) and Office Depot (ODP) would likely be $1.2–$1.5 billion after the companies’ integration is complete. This will likely result in incremental EBITDA (earnings before interest, tax, depreciation, and amortization) of $0.8–$1 billion in present value terms. This would imply a combined forward EBITDA of $2.9–$3.1 billion for the new company.

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ODP-SPLS combined valuation

Using valuation multiples of 6.5x–7x, this translates to an estimated valuation of ~$19.10–$21.70 for the combined company. This represents a premium of ~23%–40% compared to the combined current enterprise value. Using enterprise value weights, this would value ODP at ~$5–$5.7 billion. This includes debt.

Excluding debt, it implies an equity valuation of ~$4.3–$5 billion. This would represent an estimated fundamental share price of ~$7.89–$9.15. This is a premium of 20%–40% over $6.55—the prevailing price as of December 9.


However, considerable execution risk lies ahead for the company. There are also short-term disruptions—like the data breach at SPLS last week. We’ll discuss the data breach in Part 19 of this series.

SPLS is part of the iShares Core S&P 500 ETF (IVV), the SPDR Consumer Discretionary Select Sector ETF (XLY), and the PowerShares QQQ (QQQ).


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