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Hedge Fund Pushes For Staples And Office Depot To Merge

A hedge fund with stakes in both Staples and Office Depot is ratcheting up pressure on the office-supply rivals to merge, Bloomberg News reported.

The CEO of Starboard Value, Jeffrey C. Smith, sent a letter to Staples CEO Ronald Sargent on Tuesday (Jan. 20), demanding that Staples hire advisers to work on the merger, and calling it “the best way to maximize value for Staples’ shareholders.” A Staples-Office Depot merger could deliver more than $2 billion in cost savings and help the office-supply retailers compete with larger chains and online offerings, the letter said. It also criticized Staples for delaying a shareholder-supported measure to separate the chairman and CEO roles.

The letter represents Starboard’s most public push for the merger, after behind-the-scenes prodding.

Staples responded that it has met with Starboard several times to discuss ideas, without discussing its willingness to make a deal. Staples “welcomes continued, constructive dialog with shareholders focused on enhancing the value of Staples,” the Framingham, Mass.-based company said in a statement.

Starboard owns about 6 percent of Staples shares and nearly 10 percent of Office Depot. The activist investor successfully pushed Office Depot and OfficeMax to merge, and investors have speculated that it could replicate that strategy with Staples.

The U.S. Federal Trade Commission approved Office Depot’s $976 million acquisition of OfficeMax in 2013, citing increased competition in office supplies from retailers like Amazon and Wal-Mart, according to Reuters. But because Staples and Office Depot are the biggest remaining retailers of core office supplies, such as paper and ink toner, a long antitrust review would be likely in the case of a merger.

Regulators blocked a previous Staples attempt to buy Office Depot in 1997, citing antitrust concerns.

Both Staples and Office Depot have seen steady erosion in same-store sales in the face of both big-box and online competition. In December, Staples announced the launch of its own online platform, Staples Exchange, to let vendors sell their products directly through Staples’ e-commerce channels.

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