Digging Into Staples-Office Depot Merger Scenarios With Citi

The market has been talking about a possible acquisition of Office Depot Inc ODP by Staples, Inc. SPLS. The merger was already approved in China and New Zeland, and by Office Depot’s shareholders, but is waiting for clearance from regulatory agencies in the United States, the European Union, Canada and Australia.

The latest chatter related to the issue compares the deal with that of SYSCO Corporation SYY and US Foods. However, Jefferies analysts have predicted that the merger is highly likely to get FTC approval.

Related Link: Is There A Parallel Between The Staples-Office Depot Deal And Sysco-US Foods?

In a report issued Wednesday, Citi analyst Kate McShane and her team also went over this scenario, to see if the same reasons that made the SYSCO-U.S. Foods merger anticompetitive make the combination of Staples’ and Office Depot’s commercial segment also anticompetitive.

“The FTC stated that Sysco and US Foods had 75% of their market. SPLS’ and ODP’s market share in the commercial space is difficult to determine because the addressable market also depends on what product categories are included,” the analysts explained. The addressable market’s size would determine if the combined company will make up 15 percent, 25 percent, or even a larger portion of the market.

Shares of both companies fell on Wednesday and Thursday, following the Sysco news. Now, based on Staples’ offer of $7.25 in cash and 0.2188 shares of the company’s stock for each share of Office Depot, the latter has a 20 upside, if the deal were to be closed.

On the other hand, if the merger is blocked, the analysts expect Staples’ stock to fall to around $9.50, and Office Depot’s stock to tumble to $4.50.