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The ODP Corporation (ODP) Turns Down Staples' Latest Proposal

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Staples’ ambitious attempt to acquire the parent company of Office Depot seems to have hit a roadblock. The ODP Corporation (ODP - Free Report) has turned down the latest offer of USR Parent Inc. — the Sycamore-affiliated owner of Staples — to acquire its various assets.

In the letter dated Mar 10, 2021, Staples proposed to acquire various assets of The ODP Corporation and committed to seek regulatory approval for such transaction. These assets include retail and consumer-facing e-commerce operations, B2B-related assets of Grand & Toy (the Canadian subsidiary which has no retail stores), the Federation companies, all U.S. distribution centers, and the global corporate headquarters.

However, the Boca Raton-based company in its letter dated Mar 15 informed that Staples’ proposal has no discussion on the valuation of the assets that it intends to acquire. Also, the letter of intent did not include any commitment on the part of Sycamore or Staples to complete the proposed deal, bear regulatory risk or agree to a purchase price. As a result, The ODP Corporation stated that keeping in mind stockholders’ interests it is not feasible to proceed with such a proposal.

Instead, The ODP Corporation restated its earlier proposal of combining its retail and consumer-facing online businesses with Staples, including the formation of a joint venture or potential sale of such assets.

Joseph Vassalluzzo — The ODP Corporation chairman — in the letter said, “ODP does not propose, however, that the Federated Companies or Grand & Toy, which are B2B businesses, or any of its U.S. distribution centers, which are part of ODP’s B2B business strategy, would be included in any such sale or joint venture.”

The ODP Corporation remains committed toward enhancing its B2B services and technology solutions capabilities so as to effectively serve customers. Markedly, the company has been striving to expand into higher value industry segments. As part of this strategy, it has made notable progress on B2B pivot and digital transformation. Progressing along these lines, the company has acquired BuyerQuest Holdings, Inc. — a leader in cloud-based enterprise Procure-to-Pay (P2P) software. This will enable The ODP Corporation to deliver an integrated, e-commerce, P2P, and supply chain platform designed to transform how businesses buy and sell.

The company has also collaborated with Microsoft to migrate current workloads and legacy systems to Azure, a cloud computing platform. The company is also working to bring its new digital procurement technology platform to Microsoft Dynamics 365 Business Central customers that will allow them realize immediate purchase savings and procurement automation.

Management plans to make investments in the digital transformation endeavors in the range of $20 million to $25 million in capital expenditures and $30-$35 million in operating expenses in 2021.

Stock Performance

We note that shares of The ODP Corporation have fallen 9.5% in the past one month against the industry’s growth of 4.2%. This Zacks Rank #5 (Strong Sell) stock came under pressure following the company’s dismal fourth-quarter 2020 performance, wherein both the top and the bottom lines not only missed the Zacks Consensus Estimate but also declined year over year, thanks to the challenges posed by the ongoing COVID-19 crisis.

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