Office Depot Inc (ODP) & Starboard Value’s End Run Around It

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Change at Office Depot Inc (NYSE:ODP) can’t come fast enough for activist investor Starboard Value, which owns almost 15% of the office-supplies business and is its largest shareholder. Even as Office Depot seeks to take over ailing rival OfficeMax Inc (NYSE:OMX), the investment firm is agitating for the ouster of the board of directors.Office Depot Inc (NYSE:ODP)

In a filing with the SEC, Starboard announced that it was taking its move to replace the board of directors directly to the company’s shareholders. It’s not that it doesn’t favor the OfficeMax Inc (NYSE:OMX) acquisition — in fact it does — it’s just that it feels that most of the board of is too inexperienced to run a retail operation, and that the board’s decision to entrust the CEO spot to someone with zero experience highlights the shortcomings of the company’s executive leadership.

Office Depot is delaying holding its annual meeting and citing the merger as the reason, but Starboard notes that OfficeMax Inc (NYSE:OMX) is going ahead on its own and thinks the board is trying to keep shareholders from voting for members. As a result, Starboard is commencing a consent solicitation, which allows stockholders to take action in the absence of a stockholder meeting.

No substitute for experience
On the surface, it’s hard to argue with Starboard’s reasoning. Other than Kathleen Mason, president and CEO of Tuesday Morning Corporation (NASDAQ:TUES), and Dunkin Brands Group Inc (NASDAQ:DNKN) CEO Nigel Travis, the board is bereft of anyone with a retail background. A case could perhaps be made for Brenda Gaines, the former president and CEO of Diners Club North America, a division of Citigroup Inc (NYSE:C), but she retired from there more than eight years ago, and it could be why, out of Office Depot Inc (NYSE:ODP)’s 10 directors, Starboard is seeking to replace eight of them.

And though its slate of nominees seems fairly solid, I’ve got reservations about one of them, namely Bob Nardelli, the former The Home Depot, Inc. (NYSE:HD) head who left the big-box retailer in a bit of a shambles. While he came to the position with respectable bona fides, having served at General Electric Company (NYSE:GE) and Chrysler, his tenure at the DIY center was anything but smooth, and even his departure left a bitter taste in the mouths of lots of investors.

Naturally, although Jeffrey Smith, co-founder and CEO of Starboard, wants himself on the board, the rest of his picks to join him come with significant retail backgrounds, including the CEO of privately held Orchard Brands, a specialty clothing retailer; the president and CEO of Republic Airways Holdings Inc. (NASDAQ:RJET)‘ Frontier Airlines subsidiary; and a financial and technical specialist who’s worked at Allied Domecq and Kraft and currently serves on the board of Tractor Supply Company (NASDAQ:TSCO).

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