How Much Staples Could Really Fetch in a Buyout

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If you have followed the dust cloud of failed mergers over the years, chances are high that you know the saga of the failed merger between Staples, Inc. (NASDAQ: SPLS) and Office Depot Inc. (NASDAQ: ODP). That deal failed miserably as concession and after concession failed to generate regulatory approvals for the number-one and number-two direct office supplies retailers. For nearly a month it has been out there that Staples, who was going to be the acquirer Office Depot, was in talks to be acquired.

It is one thing to report a continued market rumor. It is another thing to consider what Staples investors could actually expect to receive if a buyout were to come.

The Wall Street Journal originally reported that Staples ha been in early stage talks with private equity bidders. That report sent shares of Staples from $8.66 the prior day to $9.51 the following day — with Staples’ stock price rising above $10.00 for three business days, but not closing back above that $10.00 level. Staples shares had been at $9.65 as of May 1, 2017, and they traded as high as $10.25 after a Reuters report indicated that Cerberus and Sycamore are interested in acquiring Staples.

Now there are reports from Reuters that Staples has had more buyout interest. While this is looking like a private equity buyout rather than a strategic buyout (if it is even correct, that is), 24/7 Wall St. wanted to focus on what investors might really be able to expect if a buyout announcement is made.

The first thing to consider is whether the Federal Trade Commission would ever allow an Office Deport merger to be reconsidered. After all, it is now under a new regime that has pledged to have less of a stranglehold on regulations. That being said, Staples and Office Depot have continued erosion from Amazon.com Inc. (NASDAQ: AMZN) and other online merchants. At the same time, many of the core office supplies sales of products just are not needed as much as they used to be.

If analysts are correct, Staples may have already reached a peak-buyout value. The original estimates put a price target out there of close to $7 billion. This would be a premium of more than 20% if that was correct at the time. Staples currently has a market capitalization rate of about $6.4 billion.

What investors have to consider at the start of May is that the current $9.79 share price is actually just one-cent under the Thomson Reuters sell-side consensus analyst price target of $9.80. That consensus target price has fluctuated above $9.50 but below $10.00 Since November of 2016.

Staples has faced shrinking sales from fiscal year 2013 each year — from $24.4 billion then to $18.25 billion for the year ending in January 2017. Thomson Reuters sees sales of $18.449 billion for the current year, with a 1% sales decline projected the following two years.

After looking at multiple analyst calls, investors might have a very muted expectation here for any huge premium. 24/7 Wall St. has included multiple analyst report valuations and summaries below.

On April 12, JPMorgan maintained a Neutral rating but it had a $10 price target. This was on the heels of having hosted investor meetings with Staples’ management. The firm noted that they were encouraged on growing the North American Delivery business while preserving the retail business profitability as its revenue base shrinks.