Staples has wanted to purchase Office Depot (NASDAQ: ODP) for quite some time, having made two previous offers in prior years, which were blocked by the Federal Trade Commission (FTC) over competition concerns. And it seems USR Parent Inc., the parent company of Staples is at it again. On January 11th, 2021, Staples made an unsolicited offer to purchase all of Office Depot's issued and outstanding common stock at $40 per share, which would total just over $2.1 billion.
The acquisition offer was in review by the board at ODP, but a formal release on January 19th, 2021, revealed that Office Depot would decline the offer and instead continue on developing their business-to-business (B2B) strategy to achieve shareholder growth moving forward. It's clear Office Depot's concern over a lengthy and costly regulatory review process that has no guarantee of success is a major reason for declining the current offer, which could eventually be approved despite failed attempts previously.
What this means for investors
Traditionally, mergers result in store closures for the purchased company. This helps maximize operations and eliminate risk of competing wages and prices between neighboring stores that were gained during acquisition. Consolidation is a necessary part of a successful merger, but its impact does have negative effects in the marketplace particularly for the leasing landlord.
The declined offer means things will stay pretty much as is for both companies, and plays out particularly well for those who are invested in retail real estate investment trusts (REITS) with vested interest in Office Depot or Staples.
Right now, Kimco Realty (NYSE: KIM) collects 1.5% of rents from Office Depot and Staples, SITE Centers Corp (NYSE: OLP) accounts for 1.9% of its total rents from Office Depot and Staples, and Weingarten Realty (NYSE: WRI) leases to Staples, although the percentage of rents by tenant isn't disclosed.
A merger deal isn't off the table completely. Office Depot stated a joint venture could be a potential solution for the synergy of the companies, which would place equal amounts of risk for the parties. This means investors should be prepared for the eventual merger, in some capacity, but there's no telling when. Staples' previous offers to purchase Office Depot were in 1997 and 2016. It's likely a deal will be made in the near future, but regulatory reviews and working through the details of the deal would take months before completing.