By Tess Stynes
Starboard Value LP confirmed it has taken a 13.3% stake in
Office Depot Inc. (ODP), and said the office-products supplier can
improve its profitability by implementing a host of suggestions by
the activist investment fund.
Office Depot shares were up 10% at $2.72 in recent premarket
trading. The stock is up 61% this month. Office Depot shares had
plumbed three-year lows lately, creating room for a rebound.
The stake makes Starboard the struggling retailer's largest
shareholder.
Starboard Chief Executive Jeffrey Smith, in a letter to Office
Depot Chairman and Chief Executive Neil Austrian and the board,
said Office Depot's shares are "deeply undervalued" but management
can cut expenses and take other measures to improve its
performance.
Starboard's suggestions also included increasing the mix of
higher margin products in its North American retail business and
downsizing to smaller store formats.
Office Depot sells a broad array of merchandise, from staplers
and printer ink to chairs and copy machines, through a network of
more than 1,200 retail stores in the U.S. and Canada. A majority of
its stores are in California, Texas and Florida.
Office Depot also sells office supplies directly to businesses,
and has an international unit that operates through joint ventures,
licensing agreements and Internet sales.
Office Depot and rival OfficeMax Inc. (OMX) have struggled in
recent years with declining sales, hurt by cutbacks in spending as
business customers buy less paper, ink and office supplies, the
U.S. unemployment rate remains stubbornly high and newer Web-based
entrants eat away at market share.
Mr. Austrian, a longtime board member who stepped into the CEO
role in May 2011, has been trying to turn Office Depot around by
changing the retail-store experience, including downsizing and
remodeling U.S. stores. In August, the company posted
lower-than-expected sales and a net loss for the second quarter as
the North American market remained weak.
Starboard acknowledged in the letter to Mr. Austrian that the
industry was under pressure, but said that Office Depot's
performance lagged behind that of peers OfficeMax and Staples Inc.
(SPLS), even though the three companies are structured
similarly.
New York-based Starboard targets small-cap companies it
considers undervalued.
--Anupreeta Das contributed to this article.
Write to Tess Stynes at Tess.Stynes@dowjones.com
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