Has Office Depot Inc (ODP) Become the Perfect Stock?

Office-supply store chains have been struggling lately, with a weak economy that has especially affected the small businesses that tend to be their biggest customers. As a result, Office Depot and its peers have found themselves fighting over pieces of a shrinking pie, with OfficeMax Inc (NYSE:OMX) having seen similar revenue contraction over the past five years and even Staples, Inc. (NASDAQ:SPLS) suffering sales declines last year.

Those woes led Office Depot and OfficeMax to announce a merger of equals last week, with Office Depot to be the surviving company and OfficeMax investors to get 2.69 shares of Office Depot stock for each OfficeMax share they own. The companies hope to save $400 million to $600 million in costs annually within three years of the merger, but the synergies are likely to involve store closures in areas where both chains compete. Some analysts have noted that Staples may end up being a big winner from the move, as Office Depot and OfficeMax customers frustrated with store closures may flee to their rival. That explains the big gains in Staples’ stock when the merger plans became public.

For Office Depot to improve, it needs the merger to be successful in rescuing revenue and cutting costs. With the companies not expecting a completed deal until much later in 2013, Office Depot isn’t going to get much closer to perfection anytime soon.

The article Has Office Depot Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of Staples.

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