Staples-Office Depot Merger On Shaky Ground?
Recent trading in the shares of merger candidates Office Depot, Inc. (NYSE:ODP) and Staples, Inc. (NASDAQ:SPLS) has caused some to speculate that the marriage may be on uneven footing.
Insider Monkey has reported that a recent decision by the U.S. District Court in the District of Columbia to block a merger between Sysco Corporation (NYSE: SYY) and U.S. Foods, Inc. has “spooked” industry observers, causing them to believe that similar judicial action could prevent an Office Depot-Staples merger. Management teams of both companies appear to have the support of a large majority of their respective shareholders.
Office Depot – Staples Merger First Proposed in February 2015
The $6.3 billion deal was originally announced as a Staples purchase of Office Depot in early February. The deal offered $7.25 per share in cash and 0.2188 shares of Staples stock for each share of Office Depot. Fortune calculated that this valued the shares of Office Depot near $11.00.
Shares of both Office Depot and Staples rallied and held values in line with what would be expected of two merger candidates completing a fairly routine transaction, for a short period. However, the shares of each have faced unexpected selling on what some believe are fears that a merger may be blocked.
Typically, shares of acquisition targets like Office Depot will trade quickly up to near buy-out levels and then trade slowly up toward the buy-out price as the deal approaches and regulatory hurdles are crossed. The trade in Office Depot and Staples shares is not following this pattern. Shares of Office Depot sit at $8.77, near 10 percent below levels reached immediately after the buyout announcement. Shares of Staples sit at $15.41, near 20 percent below similar post-merger news highs.
Timing After 2013 OfficeMax Deal May Raise Eyebrows
The office supply industry is notorious for its tight margins and stiff competition. It is not surprising to many observers that a plan to create a much larger Office Depot-Staples combined entity unfolded. It is also not surprising that markets have become jittery, with regard to possible judicial interaction. Some feel that regulators may deem that the 2013 Office Depot-OfficeMax merger had dwindled the number of market participants far enough.
This situation with Office Depot and Staples may resolve itself or it may run into bona fide regulatory hurdles. Office Depot is slated to announce fourth quarter earnings on August 4, 2015. Consensus Wall Street analysts estimates are calling for revenue of $3.51 billion for the quarter ending June 30, 2015. For Staples, analysts are calling for revenue of $4.95 billion for the quarter ending July 15, 2015. Analysts have forecast earnings per share growth of 440.00 percent and 70.00 percent for the current and coming quarters for Office Depot and EPS growth of 0.00 percent and -2.70 percent over the same periods for Staples.
[Office Depot Photo by Joe Raedle/Getty Images – Staples Photo by Getty Images News]
