Staples (SPLS) and Office Depot (ODP) will be in the spotlight over the next two days as the saga surrounding their proposed $6.3 billion merger awaits a judge's decision that is expected by tomorrow.
Any merger or acquisition bid is sure to receive interest from the arbitrage investment community, and Staples/Office Depot's proposed tie-up is no different. With the court's decision essentially viewed as a toss-up, however, no analyst or investor we spoke to wanted to go on the record ahead of the ruling.
When the two companies announced their merger intentions on Feb. 4, the cash and stock considerations totaled a buyout price of about $10.36 per share. Office Depot closed Friday's session at $6.14, making the purchase price a 69% premium over the stock's last closing price.
In a phone interview today, Alpine Associates analyst Judy Delgado said the result of this preliminary injunction hearing is likely to be the definitive development in the merger saga. The Federla Trade Commission is unlikely to continue to pursue blocking the merger if District Judge Emmet Sullivan rules in favor of the defense, Delgado said. On the other hand, Staples has previously said it will drop its bid for Office Depot if the judge approves the FTC's injunction request.
If Sullivan rules against the companies, Delgado said she has seen sell-side analysts modeling Office Depot trades at around $4.20 per share, a 47% downside from the stock's previous close.
One of the main sticking points of the trial was the role that Growth Seeker holding Amazon (AMZN) will play in the office-supply corporate contract sector.
While the FTC and Amazon tried to downplay the threat Amazon Business posed to Staples and Office Depot, Amazon's representative at the trial did not go so far as to say the division would not be competitive within two years.
"Yes, Office Depot could survive on its own without Staples, but the question is for how long," Delgado said Monday. "Amazon Business has the infrastructure and client base to be able to compete sooner rather than later."
Earlier this month, Amazon reported that Amazon Business' revenue has surpassed $1 billion, with sales growing 20% month over month since it was launched in April 2015.
While Sullivan had pointed questions for both parties during the preliminary injunction hearing -- which concluded three weeks ago -- he repeatedly needled attorneys for what he saw as incongruities in the government's case.
Delgado emphasized that "In the end, you really don't know which way this will go until Sullivan reads his decision."
So all interested parties have about 24 hours left before this year-plus saga comes to a conclusion. But with Amazon Business waiting in the wings, the real story may just be getting under way.