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Starboard Value Discloses 13.3% Stake in Office Depot (ODP), Becomes Largest Holder

September 17, 2012 7:32 AM EDT Send to a Friend
Starboard Value LP (together with its affiliates, "Starboard"), today announced a 13.3% ownership stake in Office Depot, Inc. (NYSE: ODP), making it the Company's largest common shareholder. Starboard also delivered a letter to the Company's Chairman and CEO, Neil Austrian, and the Company's Board of Directors. In the letter, Starboard expressed that based on its detailed research and analysis, Office Depot is deeply undervalued and a substantial opportunity exists to improve the Company's performance and valuation based on actions that are within the control of Office Depot's management team and Board of Directors.

In the letter, Starboard outlines a number of opportunities to meaningfully improve operating performance and dramatically increase EBITDA. Further, in the letter, Starboard states that Office Depot can achieve substantial margin improvement by, among other things:
  • meaningfully reducing general and administrative ("G&A") expenses to historical G&A expense-to-sales and G&A expense per store ratios;
  • significantly lowering advertising expenses, which are substantially higher than peer levels and do not appear to be generating an adequate return on advertising dollars invested;
  • increasing the mix of higher-margin services in its North American Retail Division, which carry gross margins two times greater than its average store gross margin;
  • increasing private label direct sourced penetration of stock-keeping units (SKUs), which carries significantly higher gross margins than sourcing through an agent;
  • reducing the number of SKUs in order to lower procurement expense;
  • downsizing to smaller store formats to drive substantially higher operating margins; and
  • increasing the mix of significantly higher-margin small- to medium-sized business customers in the Company's North American Business Solutions Division.
Starboard further estimates that Office Depot de Mexico, a non-core and highly profitable 50/50 joint venture between Office Depot and Grupo Gigante, which is not consolidated in the Company's financial statements, could be worth more than 50% of Office Depot's entire enterprise value.

Starboard stressed that management must act with a renewed sense of urgency and discipline to reduce expenses and execute on strategic initiatives and expressed its hope of continuing a constructive dialogue with the Company's Board of Directors and senior management to address the challenges and opportunities facing Office Depot, and to ensure that the Company is run with the best interests of all shareholders as the primary objective.

For the full letter, click here.




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