Office Impasse: Office Depot/Staples Merger On The Verge Of Getting Shredded

A failed merger wouldn’t come as a total surprise, as red flags began waving when the FTC put the kibosh on the proposed merger between SYSCO Corporation (NYSE:SYY) and US Foods, the United States’ two largest food distributors, earlier in the summer. The FTC filed against that merger, claiming it could damage competition and create a monopoly, to which US Court Judge Amit Mehta agreed. That decision had sent shares of Staples and Office Depot dropping by about 4.6% and 2.5% respectively on June 24.

Among the elite hedge funds that we track, interest in the two stocks diverged during the second quarter, in light of the SYSCO decision. 49 hedge funds held Office Depot in their portfolios, up by three from the end of the first quarter. However, ownership of Staples fell by nine funds to 47 as some investors got cold feet concerning its likelihood of being acquired. Hedge funds owned 28.70% of Office Depot’s outstanding shares on June 30 and 17.10% of Staples’ shares. In addition to Smith, Stephen V. Raneri’s LionEye Capital Management and Phill Gross and Robert Atchinson’s Adage Capital Partners were among the investors we track which held shares of both companies in their portfolios as of June 30.

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