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ODP's Shares Rise Sharply on Staples' Takeover Offer

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Shares of The ODP Corporation (ODP - Free Report) surged roughly 19.4% on Jan 11, following the confirmation that it has received a buyout offer from USR Parent, Inc. ("Staples"). This is Staples’ third ambitious attempt to acquire the parent company of Office Depot. Sycamore Partners-backed Staples has sent a letter outlining a proposal to acquire the Boca Raton-based company for $40 per share in cash. The offer represents a 61% premium to ODP Corporation's average closing price in last 90 trading days, and is also 8.2% above Jan 8 closing price.

Industry experts cited that the current proposal, which is valued at $2.1 billion, would help consolidate Staples and ODP Corporation’s position in the office-supplies space that has become highly competitive owing to growing dominance of online retailers, primarily Amazon (AMZN - Free Report) . Meanwhile, ODP Corporation informed that it is “carefully reviewing the proposal” and taking legal and financial opinions. Well even if both parties agreed, it is to be seen whether the deal can clear all the regulatory hurdles related to the merger.

Staples’ earlier push to buy Office Depot (now ODP Corporation) for $6.3 billion faced antitrust scrutiny, and the deal was called off in mid-2016. The Federal Trade Commission had then ruled that the deal would lower competition nationwide and result in price hikes and fewer options for large corporate houses that usually make bulk purchases. The regulatory body had also thwarted a takeover attempt made in 1997.

Nonetheless, Staples seems determined to get the deal done this time. Analysts pointed that the business environment has drastically changed with more and more companies now providing office supplies.

Staples informed that it has sufficient resources to finance the transaction and may raise the proposed offer, if ODP Corporation sells or divests its CompuCom unit or its U.S. commercial business unit (the "B2B Business"). It also stated that in case negotiation is not reached, it may initiate a public, all-cash tender offer for 100% of ODP's outstanding shares of common stock in March 2021.

Wrapping Up

Let’s wait and see how things unfold in the near term. But for the time being, players in the office-supplies space are benefiting from surge in demand for computers, printers, paper and other accessories owing to the recent boom in work from home triggered by the ongoing pandemic. Well, this remote working culture is here to stay for a while, and ODP Corporation through its product and services looks well poised to cater to the evolving demand stemming from such changes.

The company leverages its direct supply chain, robust e-commerce platform and retail facilities to effectively serve customers. Markedly, the company not only provides traditional office supplies, it also offers technology services, including device management and security among others. The company’s low-cost model, multiple routes to market, expanded product portfolio, and flexible supply chain and distribution capabilities bode well.

Markedly, shares of this Zacks Rank #3 (Hold) company have surged 85.4% in the past year, compared with the industry’s rally of 22.4%.

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