KeyBanc Remains Optimistic on Staples (SPLS)/Office Depot (ODP) Deal Despite Delays

KeyBanc maintained an Overweight rating on Staples, Inc. (NASDAQ: SPLS) with a price target of $20. Earlier Staples and Office Depot (Nasdaq: ODP) announced that they have mutually agreed with the FTC to extend the review period for the Office Depot acquisition. Under the terms of the agreement, the FTC has agreed to issue its decision regarding this transaction by December 8, 2015.

Analyst Bradley B. Thomas called delays concerning but expected, and he pointed out significant upside if a deal is approved.

"We believe this delay was largely priced into stocks (following recent media reports regarding the FTC). While we remain optimistic that the deal will close as planned, it seems increasingly likely timing could move into 2016 (with a delay in Europe) and SPLS/ODP could implement a divestiture. Upside remains significant if a deal goes through, in our view," said Thomas.

"While the deal has received approval from regulators in Australia, New Zealand, and China, the EU could cause a delay. As reported on September 25, the European Commission will conduct a more in-depth Phase II review. The commission’s preliminary review raised concerns that the deal could lead to higher prices and fewer choices for customers (particularly in the contract channel). The European Commission has until February 10, 2016, to make a ruling," continued the analyst.

Thomas added, "In the FTC’s unanimous, unconditional approval of the ODP/OMX merger in 2013, the FTC highlighted numerous competitors beyond the OSS channel. As we have written, we believe the Fortune 100 Company domestic contract channel could be an area the FTC reviews, but we believe there is the potential for a divesture, if necessary. While recent developments are concerning and we have difficulty handicapping probabilities, we remain optimistic SPLS/ODP will still get a deal done and investors will benefit."

For an analyst ratings summary and ratings history on Staples, Inc. click here. For more ratings news on Staples, Inc. click here.

Shares of Staples, Inc. closed at $12.37 yesterday.

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