Activist hedge fund Starboard Value pushes for Staples and Office Depot merger

New York -- Activist investor Starboard Value LP, which helped put together the merger of OfficeMax and Office Depot, issued a letter on Tuesday calling for Staples Inc. and Office Depot Inc. to merge, saying it would lead to greater savings.



Staples responded with a short statement in which it said it has met with Starboard Value on several occasions to discuss their ideas. The retailer said it has made clear that that the Staples’ board “carefully considers all actions that would create shareholder value and is committed to taking actions that are in the best interests of all of the company's shareholders.”



In December, Starboard revealed it had taken a 6.1% stake in Staples. It has a 9.9% stake in Office Depot.



“As we discussed in our recent meeting, we believe that the best way to maximize value for Staples' shareholders is through exploring and completing a business combination with Office Depot,” Jeffrey C. Smith, managing member, Starboard Value, wrote in a letter to Staples chairman and CEO Ronald Sargent. “For a variety of reasons, we believe that now is the right time to pursue such a transaction, and we urge you to immediately retain a reputable investment bank and legal advisors to assist the board in evaluating, structuring and executing a transaction with Office Depot.”



Smith noted that over the past two years, Staples management has pursued a standalone strategy which has resulted in a 31% decline in earnings per share.



“Without a combination with Office Depot, we would expect Staples' share price to decline to reflect the Company's standalone value,” he wrote.



Starboard said that synergies from a merger with Office Depot would be sufficient to double the operating profits of the combined company. Starboard added that "if it becomes clear to us that you have no intention of seriously pursuing this unique and highly attractive opportunity, it would be a clear sign that significant leadership change is needed at Staples."



A Staples-Office Depot merger could deliver more than $2 billion in cost savings and help the retailers compete with larger chains and online offerings, according to Starboard.