By Andria Cheng, MarketWatch
NEW YORK (MarketWatch) — A marriage between No. 2 and No. 3 office-supplies chains Office Depot Inc. and OfficeMax Inc. would be good news not only for investors in both stocks, but it turns out those owning larger rival Staples Inc. may benefit as well.
On Tuesday, Staples (NASDAQ:SPLS) shares surged 15% after the Wall Street Journal reported on Monday its two smaller rivals are in merger talks. Office Depot (NYSE:ODP) rose 18%, while OfficeMax (NYSE:OMX) surged 25%.
The office-supplies chains face declining sales and traffic from increased online competition, sluggish U.S. job growth, an oversaturation of stores and digitization of the work space that sapped demand for such traditional products such as paper and ink. A tie-up would help lead to cost consolidation and store closings to make Office Depot and OfficeMax better competitors, analysts said.
Reuters
Staples would benefit, as well. It stands to pick up lost sales from any store closings and any merger-synergy disruptions, they said.
If Office Depot or OfficeMax “failed to execute well, Staples could benefit more significantly,” said Nomura analyst Aram Rubinson, adding Staples also could pick up some sales to business and other contract customers.
He added Staples’ sales stand to benefit by 2% in North America retail and delivery for a minimum potential per-share profit boost of 10 cents a share.
Some analysts said Staples could also buy some stores that may close in markets that are dominated by Office Depot and OfficeMax and it could also hire some departing sales staff from the combined entity.
“We see three winners,” said Credit Suisse analyst Gary Balter.
Sanford C. Bernstein & Co. analyst Colin McGranahan estimated Staples may see an annual per-share profit boost of less than 20 cents, “unless a potential (Office Depot-OfficeMax) merger integration were to go very poorly, thereby generating much more substantial incremental revenues for” Staples.
He estimated for Office Depot and OfficeMax, the value of the synergies could be as much as $2.5 billion to $4 billion, potentially “dwarfing the combined market cap of the two stocks.”
Analysts estimate the two companies could shut 25% to 30% of their combined store base.
“Consolidation is needed in an overstored and secularly declining industry,” said ISI Group analyst Greg Melich.
napari says:
Its bad enough the POTUS doesnt have a clue about job creation the demographics of an aging population who are past their peak buying is another drag on an already weak economy.
If one is looking for steady work best try “care giving” or the funeral business!
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19th February 2013 at 1:29 pm
sangell says:
One wonders how many other zombie retail and restaurant outlets are out there sustained only by cheap credit and banks rolling over developers loans.
Some have said has this ‘recession’ had hidden the more obvious signs of the Great Depression through the use of EBT Food Stamp cards, Disability insurance for bogus mental illness claims and the like but the for lease signs are quite obvious as is another Great Depression artifact, the human billboard.
Growing up I’d see old films where men would done a ‘sandwich board’ to adverstise a business. Today, in Florida, the sandwich board has given way to the waggler. A human being paid to stand by the road waving a sign on behalf of a dying business most of which are located in the dying carcass of a strip mall.
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19th February 2013 at 2:18 pm
Stucky says:
I’ve been making a clam sauce for the pasta dinner we’ll be having tonight. Using 4 dozen REAL clams, not that store bought shit. The dough is ready to go in the oven for the homemade pretzel sticks, which will be dipped in the homemade creamy spinach-artichoke dip …. for tonight’s game.
Oh, yeah. Indiana (#1) will be playing at Michigan State (#4) on ESPN at 7PM, EST. Magic Johnson (the player, not my 12 inch python) will be doing his 1st ever college game as an announcer. MSU’s Derrick “feed my fat ass another cookie” Nix is providing locker room material and predicting a “blood bath” upon my Hoosiers. IU’s superstar Victor Oladipo is playing on a possible sprained ankle. Tom Izzo will yell himself to death. Tom Cream will clap himself to death. It will be a battle for the ages. IU hasn’t won at the Breslin Center since 19-fucking-91, but I think their stinky streak ends tonight. IU by 4. This folks, …. this … is what’s important.
Fuck Office Max. Fuck Office Depot. Fuck Staples … and fuck paper clips, too. I don’t give a rats ass. I have my own little bread (literally) & circus thingee going on. I love it. Leave me alone.
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19th February 2013 at 2:33 pm
IndenturedServant says:
@sangell, hold the phone…….the sign waggler just got outsourced too. Check out this 40 second video to see what I mean. http://vimeo.com/52907661
I_S
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19th February 2013 at 2:48 pm
IndenturedServant says:
Hey, the sooner we can get all these pesky businesses in the USA closed down, the sooner we can focus on the 10,000lb elephant in the room.
I_S
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19th February 2013 at 2:50 pm
DaveL says:
The sequestration has caused this devastation. Or something like that. I have a Staples about 5 miles from my house. At no time in the past year have I seen more customers than employees in that place, and I’ve never seen more than five customers there.
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19th February 2013 at 6:46 pm
fool on the hill says:
Go get em Stuck!!!
This morning the lady friend called and I could barely understand her ………..Sore throat.
We had planned to attend a church supper in the next town.
I called her back and told her to drink lots of hot stuff with honey which she was already doing.
Told her I would be over in the early afternoon to make some Jewish penicillin.
Rummaged up some celery, onion shallots, and a carrot here on the hill and drove to my spring to fill a couple water jugs.
I have rarely consumed municipal water and my grey cells work just fine.
Did a couple of short errands, stopped at the market to get a few, pounds of chicken thighs and arrived at her pad about one thirty.
She was asleep so I went quietly to work on the chicken soup.
In about half an hour the aroma woke her up and she moved to the couch where she dozed off after a cup of hot lemonade with honey.
Finding myself with time on my hands I put together a grapenut pudding and popped it in the oven.
Used some boxed milk and rice someone who gets welfare staples had been throwing away.
This effort produced four copious servings two of which we gave to a blind neighbor and her visiting son.
Total cost was under FOUR DOLLARS!
How’s that for a happy meal?
Speaking of chow, how about you guys shaming Admin into eMailing me some scrapple.
Mary just called and told me the son just returned the kettle and pudding dishes all washed.
Also said she is all hot to go to the gospel sing tomorrow.
Tomorrow’s menu : capellini with sweet fennel sausages in a fresh (my canned Tomatoes) marinara sauce.
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19th February 2013 at 10:32 pm
Stucky says:
Stucky is ONE HAPPY camper right now.
IU 72 — MSU 68 Did Stucky call a 4 point win? You’re dame right I did. I knows mah shit!
Magic Johnsom (the player, not my 12 inch python) was an outstanding announcer.
I think I’ll go watch that vid that I_S said I shouldn’t watch.
.
ps @ fool on the hill —- you sound like a man after my own heart. Ms Freud went apeshit over my clam sauce.
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19th February 2013 at 10:38 pm
Stucky says:
I have another massive complaint. This is a true story.
There’s sure to be a lot of emotion involved in Tuesday night’s Indiana-Michigan State game. It’s a No. 1-vs.-No. 4 match-up involving two Big Ten teams, after all. But there’s a fine line between fervor and something worse. And the chaplain for the Spartans’ football team crossed it. Father Joseph Krupp, a Catholic priest in East Lansing and diehard MSU fan, posted the following tweet on Tuesday afternoon. It is just all kinds of wrong ………;
“Pray for the parents of Hoosier players tonight: they’ll weep when they see what we’ve done to their children.” — #JesuslovestheSpartans
Can you fucking believe this shit … a priest using a sporting event to warn what they will do to the children????? Holy Fucking Mary and Joseph.
Here is a picture of that cocksucker.
You people in Michigan …. if any of you would be so kind as to go kick him in the nuts …. I will donate $100 to the Catholic Charity of your choice. (Fuck you too, Chatham Police)
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19th February 2013 at 10:47 pm
Llpoh says:
Fool – is “jewish penicillin” code for playing hide the salami?
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19th February 2013 at 10:59 pm
BUCKHED says:
LLPOH…Jewish Penicillin = Chicken Soup.
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19th February 2013 at 6:28 am
Prepper News Watch for February 20, 2013 | The Preparedness Podcast says:
[...] YIPPEE!!! – 650 STORES TO CLOSE & 17,000 PEOPLE TO LOSE THEIR JOBS « The Burning Platform [...]
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19th February 2013 at 12:56 pm
BiggTmofo says:
Stuck good call on the IU-MSU game. It really is true that college basketball is more exciting this time of the year than NBA. I give major props to Kyrie Irvin for his performance last weekend in the all star game. Anyhow let’s be real Admin is best at analysing retail zombies. This merger is not going to stop their decline in a challenging retail environment. I thought office depot went under because their stores have been gone from my area for years. I still have office Depot CD-Rs.
Here is a link from 2009 that says Office Depot is in serious trouble. Random good search.
http://valuehounds.blogspot.com/2009/01/office-depot-odp-bankruptcy-candidate.html
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19th February 2013 at 7:41 pm
Fulton J. Waterloo says:
I am suprised that some of the right wing, worker hating FASCISTS on this site are not blaming everything in this article on the unions. After all, isnt that what “conservatives” want: cowed, underpaid workers, who, ironically, will become even more dependent on getting FS from the government to survive? Nothing like “conservatives” creating more DEMOCRAT PARTY voters….
Hot debate. What do you think?
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19th February 2013 at 9:25 pm
Zarathustra says:
Fulton, you are a blessing. Please come back soon.
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19th February 2013 at 9:40 pm
Administrator says:
Hey Fulton
How is that University of Phoenix gig working out for you? Did you win your 5th faculty of the year award yet? Thanks for dropping your usual turd on the site. Your brilliance and wisdom shine through.
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19th February 2013 at 7:39 am
card802 says:
Fulton would definitely be a prison bitch.
No need trying to explain how a free market works to a salad tosser.
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19th February 2013 at 8:38 am
Administrator says:
CEOs say it’s love, but it looks like desperation
Commentary: Office Depot, OfficeMax having an office affair
By Al Lewis
DENVER (MarketWatch) — The CEOs of Office Depot and OfficeMax just gushed about each other as they announced their “merger of equals’ on Wednesday.
Here’s OfficeMax (NYSE:OMX) CEO Ravi Saligram: “I joined Fred Astaire dance school, and lo and behold, Neil and I have decided to tango … Neil and I discovered … that we both love Italian wines and Italy.”
Here’s Office Depot (NYSE:ODP) CEO Neil Austrian: “From the time we started talking, Ravi and I have grown very fond of each other. It’s very clear we can work very well together … We really do share the same values, and the same vision.”
Austrian bristled at online reports that he was taking over Saligram’s company: “Let me make it perfectly clear: This is a merger of equals.”
Beyond expressing mutual admiration and equality, Austrian and Saligram had little meaningful to say as they politely took turns discussing their deal in a conference call with investment analysts. Read our full coverage: Office Depot, OfficeMax staple their fortunes together..
What’s the combined company going to be called? They don’t know. How many stores and employees will they cut to achieve their announced $400 million to $600 million in annual synergies? They don’t know. Who is going to be the CEO of this incredible shrinking office supply chain? They don’t know. Where’s it going to be headquartered? They don’t know that, either.
Office Depot is based in Boca Raton, Fla. OfficeMax is based in Naperville, Ill. If it’s truly a merger of equals, maybe they’ll meet in the middle, which would land them somewhere around Nashville, Tenn.
Maybe they’ll brand it “Office Affair” and write a country/western tune about a love that won’t last as they make all their grueling business decisions in an unforgiving economy.
The deal is expected to close before the year is through. In the meantime, these two big box retailers — once known in the retail world as “category killers” — will continue to vigorously compete with each other, their CEOs said. Yes, they’ll still be at each other’s couponing hides like love never happened — at least until they get shareholder and Federal Trade Commission approval.
I am glad this deal was announced because I have trouble remembering that Office Depot and OfficeMax are actually two separate companies. I can’t count how many times I walked into an Office Depot thinking it was an OfficeMax or vice versa.
OfficeMax sounds like a big Office Depot. Office Depot sounds like a little OfficeMax. And some of their respective stores are so close together, the only thing I think a merger might entail is opening the folding-panel wall between them.
Office Depot and OfficeMax have been confusing each other’s customers for years.
“We’re almost in the identical business,” Austrian said on the call. “We’ve got the same customers. We’ve got the same vendors, and we know each other very well.”
So why did it take so long to come up with this deal? The most commonly reused analyst quote in the office supply business — going back even before the Great Recession — is, “this industry is ripe for consolidation.”
Stocks of Office Depot and OfficeMax never fully recovered from the tumble they took after 2008. Their sales continue to shrink in the so-called recovery. And the two companies together still do not add up to one Staples Inc. (NASDAQ:SPLS) . Office Depot and OfficeMax had combined revenues of almost $18 billion last year versus $24 billion at Staples.
The biggest problem they face is that too many of their products are now available almost everywhere else. “All you had to do in 1997 is walk into Wal-Mart (NYSE:WMT) and they may have had 100 to 200 square-feet of office supplies, and today they have thousands of square feet office supplies,” Austrian noted.
Then there’s Amazon.com Inc. (NASDAQ:AMZN) , which will deliver office supplies any day to any doorstep.
The best thing Office Depot and OfficeMax can do in this environment is join hands and swing the hatchet, closing stores, slashing employees and keeping their costs lower than their declining revenues.
Austrian and Saligram, however, promise their merger will be “transformational.” They say they’ll marshal their people — even as they fire thousands of them — to cheerfully provide customers with expertise. Throughout their call, they repeatedly plied the cliche, “win-win.”
“It’s not about us,” Saligram said. “It’s about our people. It’s about our customers. It’s about our shareholders.”
Yeah, sure. Deals are never about the CEOs who put them together. And this really could be a “true merger of equals,” even though there’s never been any such thing in the past. Usually, someone gets the upper hand over time. And one of the few things we do know is that this deal is slated to close with Office Depot shareholders ending up with about 56% of the stock.
We’ll see how long this love is in the air.
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19th February 2013 at 10:27 am
sangell says:
Anyone else think Office ________ only survived this long because of the Great Recession. Face it, when lots of people get fired they need office supplies. Paper, envelopes, printer ink, and such to send out resumes and file folders to keep the rejected replies ( if any) in. As they no longer have access to company letterhead and supplies they have to buy this stuff at OfficeMaxDepot.
Now that millions of former workers have simply given up looking for work and or become disabled the need for new office supplies has dried up.
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19th February 2013 at 11:02 am