Whoa, Office Depot! Hold Up!

by Dan Burrows | September 17, 2012 11:54 am

Whoa, Office Depot! Hold Up!

So that’s why beleaguered Office Depot‘s (NYSE:ODP[1]) stock is up 40% in the last week and about 73% in just September alone: Activist fund Starboard Value disclosed Monday it has built a 13.3% stake in the struggling retailer and intends to hold management’s feet to the fire.

You might remember Starboard from some recent high-profile activism in AOL (NYSE:AOL[2]). The fund ultimately lost that proxy contest[3], but it’s pretty clear the pressure it brought to bear helped spur AOL to sell a billion-dollar patent portfolio[4] to Microsoft (NASDAQ:MSFT[5]).

No, Starboard didn’t change anything fundamental at AOL, but rattling that cage helped the struggling Internet company’s stock more than double so far this year.

That explains why the market is so hot on ODP, which popped another 7% in early Monday trading after Starboard disclosed its stake.

Starboard says ODP is deeply undervalued (even by the miserable standards of the big-box office retail sector) and is urging it to slash costs and move to selling higher-margin products.

If only it were that simple.

As we noted recently[6], competition from Wal-Mart (NYSE:WMT[7]) and Amazon (NASDAQ:AMZN[8]) is hurting Staples (NASDAQ:SPLS[9]), Office Depot and OfficeMax (NYSE:OMX[10]) in much the same way it’s crippling[11] Best Buy (NYSE:BBY[12]).

Moreover, the awful economy both here and abroad — and massive losses of government jobs at the local, state and federal level — have made the business of big-box office supply retailers tougher than ever.

That has shares reeling — and left them vulnerable to activist investors like Starboard and perhaps private equity firms, too. Staples has gotten a recent bump from rumors that Bain Capital is kicking the tires[13] on a take-out, notes InvestorPlace assistant editor Marc Bastow.

And just like that, the big-box office retailers are in play.

Hey, that’s great if you’re a professional trader — and perhaps of solace to any long-suffering shareholder looking to exit at a profit.

But for long-term value investors, all this Wall Street heat and light is largely immaterial. The macro and company-specific fundamentals haven’t changed a whit.

There’s a huge difference between trading and investing: If you don’t own Office Depot, Staples or OfficeMax, don’t start now.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Endnotes:
  1. ODP: http://studio-5.financialcontent.com/investplace/quote?Symbol=ODP
  2. AOL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AOL
  3. ultimately lost that proxy contest: http://investorplace.com/2012/06/aol-won-the-proxy-battle-but-might-lose-the-war/
  4. sell a billion-dollar patent portfolio: http://investorplace.com/2012/04/aol-nabs-1-1-billion-for-its-patents/
  5. MSFT: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSFT
  6. we noted recently: http://investorplace.com/2012/08/office-supply-stocks-the-end-of-an-era/
  7. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  8. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  9. SPLS: http://studio-5.financialcontent.com/investplace/quote?Symbol=SPLS
  10. OMX: http://studio-5.financialcontent.com/investplace/quote?Symbol=OMX
  11. it’s crippling: http://investorplace.com/2012/07/best-buy-struggles-to-find-the-best-way-forward-bby-rsh-amzn-cost-tgt-ebay/
  12. BBY: http://studio-5.financialcontent.com/investplace/quote?Symbol=BBY
  13. Bain Capital is kicking the tires: http://investorplace.com/2012/09/staples-might-not-actually-have-that-spls-amzn-wmt-bbt-bby-odp/

Source URL: http://investorplace.com/2012/09/whoa-office-depot-hold-up-odp-spls-omx/
Short URL: http://invstplc.com/1aLQskQ