Office Depot-OfficeMax Merger Seen Rescuing Value

Starboard Value, biggest holder of Office Depot, demands action.

Merging Office Depot Inc. with OfficeMax Inc. would help reverse the U.S. retail industry’s worst valuations.

After Office Depot tumbled 94 percent since peaking in 2006, Starboard Value LP became its biggest owner in September. The activist investor is demanding action as Office Depot, which last week erected a takeover defense, and OfficeMax trade for the lowest multiples versus sales among U.S. retailers valued at $500 million or more, according to data compiled by Bloomberg.

Shrinking Stores

Starboard’s letter called for Office Depot to shrink the size of its stores, reduce the number of items it sells and cut general expenses and advertising costs. Smith declined to elaborate yesterday.

‘Very Nicely’

“Office Depot and OfficeMax’s two strengths are their domestic business and Mexican business,” Tilghman said in a phone interview. “They would fit very nicely together. You’d have a good, sizable competitor with Staples, which would help avoid any regulatory hang-ups.”

No Fix

Both companies reported third-quarter results today. Office Depot reported adjusted earnings of 6 cents a share after a preferred dividend. Analysts projected profit of 1 cent a share, according to the average of estimates compiled by Bloomberg. The stock rose 19 percent to $2.99, giving the company a market value of $852.8 million.

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