Activist investor Starboard Value LP has written a letter to Staples’ CEO urging a merger with Office Depot.
The investor has about a 10 percent stake in Boca Raton, Fla.-based Office Depot and about 5 percent in Staples, which is based in Framingham, Mass.
Starboard Value’s letter to Staples Chairman and CEO Ronald Sargent, released Tuesday, says: “We believe that the best way to maximize value for Staples’ shareholders is through exploring and completing a business combination with Office Depot. For a variety of reasons, we believe that now is the right time to pursue such a transaction.”
The investor advises Staples to retain an investment bank and legal advisers to assist the board in evaluating, structuring and executing the transaction with Office Depot.
Starboard Value said a merger would result in cost-savings that would “more than double the operating profits of the combined company and would create an industry-leading office supply retailer that could more effectively compete against larger retailers and online competitors.”
Office Depot, a Fortune 500 company and Boca Raton’s largest private employer, just completed its $1.2 billion merger with rival OfficeMax in 2013 and has been integrating the companies. Office Depot CEO Roland Smith has said he expects to realize about $260 million of financial benefits from the merger during 2014, up from an estimated $200 million.
To retain the company, the state of Florida and local governments offered Office Depot $5 million in new economic incentives, if the office-supply retailer creates 378 jobs and retains 2,328 jobs over five years.
The FTC cleared the merger of Office Depot and OfficeMax, saying office-supply stores “face significant competition” from superstores such as Wal-Mart Stores Inc. and Target Corp., discount stores like Costco and Sam’s Club, and internet retailers, including Amazon.com.
But that followed a 1997 challenge by the FTC to a proposed merger of Office Depot and Staples, a deal that was ultimately blocked in federal court.