Starboard to Staples: Improve your board

New York – Activist investor Starboard Value LP, which holds a 4.5% ownership stake in Staples Inc., is telling Staples it needs to improve its board of directors to complete a proposed acquisition of Office Depot. In an open letter to members of the Staples board from Starboard Value managing member Jeffrey C. Smith, the combined companies’ board must have the “proper skill set” in place to oversee the integration.



The letter states that Staples’ current stock price is undervalued and that synergies from the merger will be greater than currently estimate by Staples management, possibly exceeding $2 billion. Starboard estimates Staples’ stock price could be worth $32 - $37 per share upon completion of the merger, an increase of 88% to 118% relative to the current share price.



“While we commend the Board for evaluating, pursuing and ultimately announcing the acquisition of Office Depot, we are mindful that the stock price performance, operating performance, and corporate governance of Staples prior to this announcement had been suboptimal,” states the letter. “Over the past two years, Staples management has pursued a standalone strategy that has resulted in a 31% decline in earnings per share. Prior to merger speculation, Staples' share price had declined more than 38% over the previous five-year period, dramatically underperforming its peer group.”



The letter goes on to accuse Staples’ current management and board of ignoring a “clear mandate” from shareholders to respond to a vote against named executive officer compensation and for a separation of the chairman and CEO role. It concludes with a request to “improve the composition of the board to ensure successful deal completion and efficient integration of the two companies.”



Staples has not yet publicly responded.