NEW YORK ( TheStreet) -- In what was described in a joint press release as a "merger of equals," the union of Office Depot (ODP) and OfficeMax (OMX) became official today, less than a week after the companies received approval from the Federal Trade Commission.
The same problem will remain for the business supply retailer, however, namely competition from Amazon (AMZN), Staples (SPLS), Wal-Mart (WMT) and others. Last year, Amazon launched AmazonSupply.com, a supply site for businesses. Staples, meanwhile, has upgraded its StaplesAdvantage.com site.
"The No. 1 reason for softness in this business is the iPad. Look at how much less we print today," noted Gary Balter, a retail analyst with Credit Suisse.The balance sheet for the new company will be carrying lots of debt. Before the merger, the debt-to-equity ratio of Office Depot was 1.14. For Office Max, the debt-to-equity ratio was 1.07. The new OfficeDepot, however, should benefit from the move in the retail industry to online delivery. At least for now. The brick-and-mortar stores of Office Depot and OfficeMax have local advantages that Amazon does not. Each has the ability to deliver orders for free the next day. Amazon charges for two-day delivery with Amazon Prime, but that could easily change as Amazon is offering same-day delivery for groceries with AmazonFresh. The new warehouses and support infrastructure that Amazon has spent billions building across the country for groceries can handle business supplies, too. For the new Office Depot to prosper against Amazon, Staples, Wal-Mart, and others, it will have to sell more goods and services, plain and simple. Neither Office Depot nor Office Max has been doing well as both have posted quarterly sales declines and lower sales over the past five years. Still, Wall Street is bullish about the merger. Office Depot is up by 45% since the deal was announced in February, and OfficeMax rose more than 50%. (The combined company will trade on the New York Stock Exchange under Office Depot's ticker symbol.) A study by Bain Management, however, found that about 70% of corporate mergers fail or don't deliver what was promised in lower costs or higher profits. And yet the investment community is betting on a prosperous future for the new Office Depot. At the time of publication, the author had no position in any of the stocks mentioned. This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts