Staples, Inc. (SPLS), Office Depot Inc (ODP): Jeff Smith is Bullish on These Companies; Will He Push for a Merger?

Jeff Smith, the manager of Starboard Value is bullish on the Office Supplies segment as Starboard has recently made two bullish moves involving Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NASDAQ:ODP). In a filing with the Securities and Exchange Commission, Starboard disclosed ownership of more than 32.36 million shares of Staples, the activist stake representing 5.1% of the company’s common stock. In Office Depot, the investor surged its activist position to 53.36 million shares, equal to 9.9% of the outstanding common stock.

As Starboard disclosed its stake in Staples, Inc. (NASDAQ:SPLS), the stock jumped by more than 9% on Thursday. Since the beginning of the year, the stock gained only around 2%, having a volatile year so far, which caused the stock to decline in the first half but over the last six months it has appreciated by 45%. Even though the stake is activist by nature, Mr. Smith has not revealed any plans or proposals that he might discuss with the company’s board of directors or management. However, we might see some more activity soon, as it is the usual strategy of Starboard.

More interesting is the case of Office Depot Inc (NASDAQ:ODP). Starboard raised its stake in a holding, which the fund intended to cut up until a couple of months ago. Last November, Starboard entered into a sale plan agreement with J.P. Morgan Securities LLC to sell up to 11 million shares of Office Depot. However, even though the stock gained more than 43% over the last year, no shares of the company have been sold and in September, Starboard decided to terminate the agreement. In addition, in September Mr. Smith resigned from Office Depot’s board of directors.

Starboard has held shares of Office Depot Inc (NASDAQ:ODP) since September 2012, while the stock surged by more than 390% since then. As the investor revealed its position that initially contained 38 million shares, equal to 13% of the company’s outstanding stock at the time, it also disclosed a letter sent to CEO and board of directors in which Mr. Smith outlined why Office Depot is undervalued and what can be done in order to increase the shareholder value of the company.

The market reacted positively on Starboard raising its position in Office Depot Inc (NASDAQ:ODP) as well, with the stock gaining more than 14% in intraday trading. The appreciation comes on the back of a possibility of a merger between two companies that Mr. Smith might intend to promote, since office supplies business is in need for a consolidation, especially with big retailers such as Amazon.com, Inc. (NASDAQ:AMZN), or Wal-Mart Stores, Inc. (NYSE:WMT) are also offering office supplies but benefit from more customers since they offer a more diverisified range of products.