Time Might be Right for OfficeMax (OMX), Office Depot (ODP) Merger (SPLS)

January 22, 2013 12:32 PM EST
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A merger of equals?

That's what some investors might be hoping for between office supply giants OfficeMax (NYSE: OMX) and Office Depot (NYSE: ODP). Credit Suisse is out with comments today citing four factors point to a deal between the two more likely happening now than at any time before. A "perfect storm," if you will.

Analyst Gary Balter give the following reasons:
  • Starboard showing a stake in Office Depot and boosting it through November. According to Balter and market data, Starboard Value LP disclosed a 13.3 position in Office Depot on September 17th, raising it to 14.8 percent as of a November 28th SEC filing;

  • Recent stock appreciation in OfficeMax makes its "currency a more attractive vehicle";

  • The departure of Office Depot's operating chief Kevin Peters in January leave a large void in operations that will need to be filled; and

  • OfficeMax's 20.4 percent stake in Boise Cascade LLC may hold about $4 per share of value. That might be able to be put toward integration and closing costs.

Amid strong performance in 2013 to-date, Balter notes that channel checks hint at weaker office supply sales. Office Depot is up 34 percent and OfficeMax is up 13 percent in 2013, while the S&P 400 Consumer Discretionary Index is just 4.8 percent higher for the year.

Traders will also be keeping an eye on peers Staples (Nasdaq: SPLS). The combination of OfficeMax and Office Depot would amount to a company with a market cap of $2.3 billion or so (not including the Boise Cascade stake and debt considerations). That's roughly 74 percent under Staples' $8.8 billion cap.

Balter didn't put a price on a potential deal, nor did he speculate on how a deal might take effect. He rates Office Depot at Neutral, with Staples and OfficeMax at Outperform.

Shares of Office Depot are lower on the session Tuesday, while OfficeMax and Staples are both positive.

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