Staples (NASDAQ:SPLS) Officially Announced Its Intention Of Purchasing Office Depot (NASDAQ:ODP)

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After months of guessing and rumors, Staples (NASDAQ:SPLS) has finally ended the suspense with the announcement of its intention of buy Office Depot (NASDAQ:ODP) which is a rival company. The cash and stock deal is supposed to be of $6.3 billion. It is speculated that this deal will face a lot of opposition as after the merger there will only be one superstore available in the market to offer brick-and-mortar office supplies.

Many would think that the opposition would be the biggest obstacle between the signing of the deal. However, investors should not focus on the obstacles but should be more concerned about what will happen if the deal did get completed. Investors should keep in mind that the last time Staples (NASDAQ:SPLS) attempted a big acquisition of a company it pushed the company into years of mediocre revenue results.

In comparison, the acquisition of Office Depot (NASDAQ:ODP) is a much bigger deal. Moreover, the merger of the two companies does not really solve the core problem that Staples (NASDAQ:SPLS) is facing currently. The company has a lot of competition in the market and it is losing its business to other huge companies like Amazon.com (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT).

The merger is a cash-and-stock deal:According to the agreement, Staples (NASDAQ:SPLS) will give the stock holders of Office Depot $7.25 in cash and 0.2188 in shares. The office supply company has stated that it has been having talks about the merger well before it began in September.Staples (NASDAQ:SPLS) had previously tried on acquiring Office Depot back in 1997 but regulators discouraged the company.

However, later when internet became popular the regulators took under consideration the fact that Office Depot had merged with OfficeMax in 2013. The competition in the field of office supplies has increased over the years and consumers have many online options like Amazon.com. Staples (NASDAQ:SPLS) has a huge online presence and the only company that is bigger than Staples is Amazon.

The growing competition made Staples (NASDAQ:SPLS) offer price-matching service.Companies like Costco (NASDAQ:COST), as well as Target (NYSE:TGT) and Wal-Mart (NYSE:WMT) have expanded their office supply departments which are giving Staples (NASDAQ:SPLS) a hard time in the market. Although the regulators will have to come up with a new merger offer but the market believes that the two companies will not come up with anything different than they did 18 years ago.

Following the announcement of the merger, the shares of Staples (NASDAQ:SPLS) decreased 10% while the stock of Office Depot (NASDAQ:ODP) merely went up to 1% at $9.40, which is a lot less than the offer price. Although things are pretty much the same as far as the regulators are concerned, however Staples (NASDAQ:SPLS) declared that if the regulators stopped the deal once again then it will be forced to pay Office Depot (NASDAQ:ODP) $250 million.

Although the merger of the two companies Staples (NASDAQ:SPLS) and Office Depot (NSADAQ:ODP) does not mean that both the companies will be able to survive in the highly competitive market. However, the merger might enable the two companies to stay in the market for a little longer. This will only happen if the two companies succeed in convincing the regulators to allow the merger and there is no guarantee that this will happen in the first place.

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