Staples-Office Depot Deal Should Still Get FTC Approval, Jefferies Predicts

In a report published Thursday, Jefferies analyst Daniel Binder maintained a Buy rating and price target of $20 on Staples, Inc. SPLS. The analyst believes that there is a high probability of the deal with Office Depot, Inc. ODP to receive FTC approval. "Demos Parneros, President of North American Stores and Online presented at the Jefferies 2015 Global Consumer Conference. Management did not provide updates on the current business, but did discuss themes around store closures, merchandising initiatives, and the proposed acquisition of ODP in light of the blocked Sysco deal," Binder reported. With Staples having closed most of its unprofitable stores, 97-98 percent of its store base is now delivering 4-wall profitability, continuing transfer rates from closed stores in the high 20 percent range, which is ahead of the management's expectations. There is some concern surrounding approval for the Office Depot-Staples deal, following the court decision on the SYSCO Corporation SYY – US Foods merger, given the similarities between the two transactions. According to the Jefferies report, "While not experts on the Sysco/US Foods case, management believes that the competitive dynamics are different in the office products industry so is not changing its previously stated views following the recent court decision in that case." The analyst believes that there are some significant differences between the two industries, such as the higher barrier to entry in the food service domain, the higher impact of disruptions in food supply on customers, quality and consistency of the product being more crucial to customers in the food segment, food pricing being a more critical aspect of a restaurant's cost structure, as compared to office products for a business.