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Will Regulatory Troubles Hinder Staples-Office Depot Merger? - Analyst Blog

Zacks Equity Research
Updated

Shares of both Staples Inc. SPLS and Office Depot, Inc. ODP were trading down 4.6% and 2.4%, respectively, yesterday, after a federal judge disapproved the merger of two other companies from an altogether different sector.

Fed judge disapproved Sysco Corporation’s SYY $8.2 billion takeover of US Foods Inc citing that the company formed from the combination of these two companies would lower competition and ultimately lead to price hike.

In Feb 2015, Staples had announced that it will acquire rival Office Depot in a $6.3 billion deal.  A few days back, an overwhelming majority of Office Depot shareholders approved the company’s takeover by Staples. Further, the merger has already received approval from the Chinese and New Zealand authorities.

However, the Sysco-US Foods ruling has somewhat rattled the investor community about the impending merger, although analysts do not view this as a concern. They are of the opinion that the Staples-Office Depot merger is likely to pass the regulatory hurdle this time unlike 18 years ago when Federal Trade Commission slammed the potential merger as anticompetitive.

An ever-changing consumer landscape is pushing the merger forward this time, as office supply retailers are facing increasing competition from companies like Wal-Mart Stores Inc WMT and Amazon.com Inc.

In 2013, the Office Depot-OfficeMax merger managed to receive the FTC approval, reflecting the paradigm shift in the office supplies sector in the last 18 years.

Meanwhile, Staples and Office Depot continue to work in tandem with the U.S. authorities as well as authorities across the European Union, Canada and Australia to close the transaction by the end of this year. Staples has already obtained the debt to finance the $6.3 billion transaction.

Currently, Staples and Office Depot both carry a Zacks Rank #3 (Hold).  

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WAL-MART STORES (WMT): Free Stock Analysis Report
 
OFFICE DEPOT (ODP): Free Stock Analysis Report
 
STAPLES INC (SPLS): Free Stock Analysis Report
 
SYSCO CORP (SYY): Free Stock Analysis Report
 
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Zacks Investment Research