Starboard Value LP today announced a 13.3% ownership stake in Office
Depot ODP, making it the
Company's largest common shareholder. Starboard also delivered a letter to
the Company's Chairman and CEO, Neil Austrian, and the Company's Board of
Directors. In the letter, Starboard expressed that based on its detailed
research and analysis, Office Depot is deeply undervalued and a substantial
opportunity exists to improve the Company's performance and valuation based on
actions that are within the control of Office Depot's management team and
Board of Directors.
In the letter, Starboard outlines a number of opportunities to meaningfully
improve operating performance and dramatically increase EBITDA. Further, in
the letter, Starboard states that Office Depot can achieve substantial margin
improvement by, among other things:
o meaningfully reducing general and administrative ("G&A") expenses to
historical G&A expense-to-sales and G&A expense per store ratios;
o significantly lowering advertising expenses, which are substantially
higher than peer levels and do not appear to be generating an adequate
return on advertising dollars invested;
o increasing the mix of higher-margin services in its North American Retail
Division, which carry gross margins two times greater than its average
store gross margin;
o increasing private label direct sourced penetration of stock-keeping units
(SKUs), which carries significantly higher gross margins than sourcing
through an agent;
o reducing the number of SKUs in order to lower procurement expense;
o downsizing to smaller store formats to drive substantially higher
operating margins; and
o increasing the mix of significantly higher-margin small- to medium-sized
business customers in the Company's North American Business Solutions
Division.
Starboard further estimates that Office Depot de Mexico, a non-core and highly
profitable 50/50 joint venture between Office Depot and Grupo Gigante, which
is not consolidated in the Company's financial statements, could be worth more
than 50% of Office Depot's entire enterprise value.
Starboard stressed that management must act with a renewed sense of urgency
and discipline to reduce expenses and execute on strategic initiatives and
expressed its hope of continuing a constructive dialogue with the Company's
Board of Directors and senior management to address the challenges and
opportunities facing Office Depot, and to ensure that the Company is run with
the best interests of all shareholders as the primary objective.
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