Starboard Value Urges For Staples - Office Depot Merger

(RTTNews) - Starboard Value LP, one of the largest shareholders of Staples Inc. (SPLS), said it believes that the best way to maximize value for Staples' shareholders is through exploring and completing a business combination with Office Depot (ODP).

Starboard owns about 6% stake in Staples and around 10% of Office Depot.

Starboard believes that now is the right time to pursue such a transaction, and it urge Staples to immediately retain a reputable investment bank and legal advisors to assist the Board in evaluating, structuring and executing a transaction with Office Depot.

In a letter to Ronald Sargent, Chairman and Chief Executive Officer of Staples, and the Board of Directors of Staples, Starboard stated that it believes that a strategic combination of Staples and Office Depot would result in synergies that would more than double the operating profits of the combined company and would create an industry-leading office supply retailer that could more effectively compete against larger retailers and online competitors. The magnitude of value creation from such a business combination far exceeds anything that either company could achieve on a standalone basis.

After the recent increase in Staples' share price, Starboard believes the stock now trades at a substantial premium to the intrinsic value of the standalone company. This results in a lower cost of capital for Staples and a stronger currency which could be used to acquire Office Depot.

"If Staples fails to fully explore and consummate a transaction with Office Depot, shareholders will undoubtedly be extremely disappointed. Over the past two years, Staples management has pursued a standalone strategy which has resulted in a 31% decline in earnings per share. Without a combination with Office Depot, we would expect Staples' share price to decline to reflect the Company's standalone value. If this occurs, shareholders will be left then to evaluate Staples based only on its poor five-year share price performance, poor corporate governance, and excessive executive compensation, which were only slightly mitigated by your recent announcement," Starboard said.

Responding to Starboard's letter, Staples said that it values constructive shareholder input and dialogue and regularly meets with its shareholders. The Company has met and spoken with Starboard Value on several occasions to discuss their ideas. The Company made clear that the Staples' Board of Directors carefully considers all actions that would create shareholder value and is committed to taking actions that are in the best interests of all of the Company's shareholders. The Company welcomed continued, constructive dialog with shareholders focused on enhancing the value of Staples.