Starboard Value, the activist investor that successfully pushed for the merger of Office Depot Inc. and OfficeMax Inc. last year, is making another run at the office-supply industry.
The investment firm disclosed a 5.1 percent stake in Staples Inc. Thursday and increased its holding in Office Depot to 9.9 percent, with plans to push the companies to merge and cut overlapping expenses in an industry with too many stores, according to a person familiar with the matter.
Starboard, a hedge fund led by Jeffrey Smith, has a record of buying stakes in companies and pushing them to combine. It also is campaigning for changes at Yahoo! Inc., including a possible tie-up with rival AOL Inc. Still, an office-supply merger would face challenges. While analysts have promoted the idea of Staples and Office Depot teaming up, such a deal would leave the industry with only one major U.S. chain.
“There are lots of reasons a deal would not pass Federal Trade Commission muster,” David Strasser, an analyst at Janney Capital Markets in New York, said in a report today. “But Starboard looks intent on getting both companies to the table. In a market where valuations are stretched, here are two companies with a catalyst, relatively reasonable valuations, and an activist with a track record of success.”
Shares of both companies lept on the news. Staples shares closed up almost 9 percent, at $16.10. Shares in Boca Raton-based Office Depot closed rose more than 12 percent to close at $7.54.
Analysts have said that office retailers may need to join forces to compete better with online rivals, such as Amazon.com Inc. In September, Credit Suisse Group AG’s Gary Balter said Staples should buy Office Depot.
Kirk Saville, a spokesman for Staples, and Karen Denning, a spokeswoman for Office Depot, both declined to comment, as did Starboard.
Smith has pressured Office Depot to improve operations since taking a stake in the company in 2012. The fund had owned 8.6 percent of Office Depot’s outstanding shares as of June 30, according to data compiled by Bloomberg.
Both retailers already have been shutting locations as online rival Amazon.com Inc. eats into their sales. Framingham, Massachusetts-based Staples has about 1,900 stores and posted revenue of $22.7 billion in the year through Nov. 1. Office Depot, which still runs OfficeMax brand stores, has about 2,100 locations and generated $15.8 billion in sales in its past four quarters.
Gary Balter, an analyst at Credit Suisse Group AG, said in September that Staples should buy Office Depot and that the deal may produce $1.4 billion in savings.
Starboard also is coming off a successful shake-up at Olive Garden owner Darden Restaurants Inc. In a rare move, Starboard persuaded investors to replace the entire board with its nominees. The investment firm embarked on the board fight after disagreeing with Darden’s decision to sell the Red Lobster chain.