Merging Office Depot Inc. with OfficeMax Inc. would help reverse the U.S. retail industrys worst valuations.
After Office Depot tumbled 94 percent since peaking in 2006, Starboard Value LP became its biggest owner in September. The activist investor is demanding action as Office Depot, which last week erected a takeover defense, and OfficeMax trade for the lowest multiples versus sales among U.S. retailers valued at $500 million or more, according to data compiled by Bloomberg.
Sanford C. Bernstein & Co. sees Starboard seeking board seats and possibly agitating for a merger with OfficeMax as businesses spend less on paper and ink and the unemployment rate sits 2.1 percentage points above the average since 1948. Combining Office Depot and OfficeMax is the most logical way to spur profit growth and cut costs via store closures, according to Caris & Co. Even Staples Inc., which was blocked in 1997 from purchasing Office Depot, said last year that a merger of its two smaller rivals would be natural.
Its a tough industry and consolidation definitely needs to occur, and Starboards presence is highlighting that, Mike Balkin, a Chicago-based fund manager at William Blair & Co., which oversees about $50 billion, said in a telephone interview. Theres obviously been different combinations thrown out there, but the most obvious one is probably OfficeMax and Office Depot. Its clear that there would be cost savings and synergies.
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