The Real Staples Reorg Problem: Now No Buyout!

Staples Inc. (NASDAQ: SPLS) was initially trading higher this morning on the heels of its restructuring. The effort was supposed to have something for everyone. Cost cuts, more rapid store closures, new leadership, and returning more cash to shareholders are all supposed to be good things when it comes to basic investing.

There is just one small problem here. If Staples is taking these initiatives, then that implies that the rumors about a private equity buyout were likely unfounded. Maybe it means that private equity shops were not interested at all. More likely is the price issue.

We brought up previously that any firm trying to take Staples private in a buyout would have several problems. First is that the current size of more than $8 billion almost certainly implies that the buyout (if even possible) would have to be a “club deal” where two, three, or even more private equity firms would have to band together to cough up that much cash. After all, private equity firms have to eventually return some of that cash to the partners and investors.

A second issue is that the buyout price could probably not be worth less than $15.00 in order to even get any interest as the 52-week range is $10.57 to $16.93. If you go back as recently as early in 2011 this was north of $20.00 per share. It is not as if the hypothetical interested buyers can come in with an at-the-market bid and have any ringing endorsement from management.

Staples shares are now down almost 4% at $11.86. We joked about there not being any Easy Button in the reorganization. It turns out there must be a Difficult Button in reorganizing Staples.

To add insult to injury, shares of rival Office Depot, Inc. (NYSE: ODP) are up about 3.5% at $2.71. OfficeMax Incorporated (NYSE: OMX) shares are only up 1-cent at $8.11 so far today.