Merger of Office Depot Inc (ODP) Supply Retailers? – OfficeMax Inc (OMX)

How the Deal Is Structured

The terms of this $1 billion all-stock deal are relatively straightforward. On a yet-to-be-determined record date, all Office Max shareholders will receive 2.69 Office Depot Inc (NYSE:ODP) shares for every OfficeMax (NYSE:OMX) share that they own. Once this occurs, Office Max will cease to trade as an independent company.

Since it is comprised entirely of stock, the value of this deal is subject to fluctuation. At Office Depot’s current share price of $4.10, the merger agreement values OfficeMax (NYSE:OMX) at approximately $11.03 per share. Unfortunately, this represents a 9.5 percent discount to Office Max’s current share price of $12.10. It seems likely that Office Depot Inc (NYSE:ODP)’s shares have declined in value in anticipation of the combination. As such, they may be ripe for a short-term correction. Alternatively, Office Depot’s share price might spike shortly after the deal’s completion. Obviously, the market cannot allow this discount to persist for long.

Complications and Potential Legal Issues

Although Office Depot and OfficeMax (NYSE:OMX) are two of the largest office-supply companies that operate in the United States, it seems likely that the proposed deal will eventually pass regulatory muster. For starters, the combined company would still be significantly smaller than its principal direct rival.

In addition, Staples is unlikely to pose the largest single threat to the combined company. These days, many Americans shop for office furniture and supplies at big-box retailers like Wal-Mart Stores, Inc. (NYSE:WMT), Amazon.com, Inc. (NASDAQ:AMZN) and Best Buy Co., Inc. (NYSE:BBY). In fact, Office Depot Inc (NYSE:ODP) and Office Max have struggled to match these larger companies’ prices for years. Lately, they have been forced to offer margin-killing price matches that further erode their long-term competitiveness. In other words, this merger is born out of necessity.

Given the financial struggles that both OfficeMax (NYSE:OMX) and Office Depot have endured in recent years, it seems likely that the companies’ shareholders and boards of directors will lend their support to this deal. As such, it will probably close without undergoing significant changes.

Long-Term Prospects and Outlook

Given that this deal is more or less essential to ensure the survival of both of these companies, shareholders cannot be choosy about its terms. However, there is reason to believe that this merger may actually place the company in an attractive position going forward. Staples’s healthy dividend makes it far more attractive to long-term investors than either Office Max or Office Depot Inc (NYSE:ODP). If the combined company were able to offer even a modest dividend, its stock might see a short-term jump that rewards early investors.

Likewise, the post-combination stock appears likely to recover from its temporary price inversion. Investors who jump in soon after the deal’s completion could be handsomely rewarded.

In sum, the merger between Office Depot Inc (NYSE:ODP) and OfficeMax (NYSE:OMX) holds out the potential of both short-term and long-term gains. While there is currently no arbitrage premium on the table, the deal’s complexion could change in response to market movements. Regardless, the combined company should be well-positioned to weather future challenges.

The article Merger of Office Supply Retailers? originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!