Paper Cuts

Agenda-Setting Financial Insight.
Feb. 19 2013 3:06 PM

Offices Depot and Max Lucky to Have Each Other

159689201
Uniting the purveyors of U.S. pens, paper clips and printer toner is obvious

Photo by PATRICK HERTZOG/AFP/Getty Images

Office Depot and Office Max are lucky to have each other. Uniting the U.S. purveyors of pens, paper clips and printer toner is about as obvious as it gets in M&A. The potential synergies could be worth more than the market value of the two companies combined. As the internet ravishes retail, at least this corner can cling to life by merger.

Consolidation is overdue. The encroaching power of the likes of Amazon and Target has been evident for years. Office Depot and Office Max are also good partners. Plenty of nearby stores could be closed and their own suppliers squeezed. Based on past deals, savings of about 2.6 percent of revenue, or some $450 million a year in this case, look realistic, Sanford Bernstein analysts wrote in a prescient note on Friday, ahead of weekend reports of the two companies being in talks.

Advertisement

These costs cuts, taxed and capitalized, would be worth $3 billion to shareholders. That's an impressive sum given the two companies were only worth around $2.1 billion combined before the merger talks were reported. Investors initially added another $400 million on Tuesday as they anticipate details on a possible all-sharer combination.

Office Max is on target to generate a net margin of just 0.9 percent in 2013, according to the average estimates of analysts collected by Thomas Reuters. Office Depot is seen struggling to eke into positive territory. Revenue at the top three chains is forecast to stagnate, but online competition could be harsher as other specialty retailers like Blockbuster, Circuit City and Borders learned. While Office Max and Office Depot might together slow the decline, their industry is still bound to die a death of a thousand paper cuts.

Read more at Reuters Breakingviews.

Chris Swann is a Reuters Breakingviews columnist, based in New York. He writes about hedge funds, commodities and asset management. He joined from Bloomberg News, where he covered global poverty issues and the International Monetary Fund.

TODAY IN SLATE

Politics

Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Two Damn Good, Very Different Movies About Soldiers Returning From War

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Students Aren’t Going to College Football Games as Much Anymore, and Schools Are Getting Worried

The Good Wife Is Cynical, Thrilling, and Grown-Up. It’s Also TV’s Best Drama.

  News & Politics
Weigel
Sept. 19 2014 9:15 PM Chris Christie, Better Than Ever
  Business
Moneybox
Sept. 19 2014 6:35 PM Pabst Blue Ribbon is Being Sold to the Russians, Was So Over Anyway
  Life
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
  Arts
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
  Technology
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.