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The New Office Depot Gets a Rude Introduction

NEW YORK (TheStreet) -- The market got its first glimpse yesterday of results from the post-merger Office Depot (ODP - Get Report), and it wasn't pretty.

Revenue for the fourth quarter was $3.49 billion, well off the $4.09 billion estimate of analysts. The company -- reporting its first quarterly results since Office Depot completed its acquisition of OfficeMax in November -- posted a loss of 3 cents a share, compared with analysts' estimates of earnings of 3 cents a share. Shares fell 9% on the news, not a great start for the country's No. 2 office-supply retailer behind Staples (SPLS).

It makes me wonder what the office-supply business would look like if the Federal Trade Commission had allowed Office Depot and Staples to merge, as they had intended to, back in 1997.

That the FTC blocked that move was quite comical, especially given the explanation by the director of the FTC's Bureau of Competition, William J. Baer, who said at the time, "The FTC's decision to ask a court to block the merger is about lower prices for consumers. If the merger is allowed to proceed, consumers will pay millions of dollars more for their copy paper, envelopes, pens and file folders."

That statement sounded funny to me in 1997 and is even funnier now as technology and the Internet have upended the retail and printing-services businesses.

The question is, can the new Office Depot make a go of it or were the fourth-quarter results a sign of things to come?

First, the merger was a positive for the industry, because consolidation was needed. If the combined entity can achieve the benefits -- including $600 million in annual cost savings -- that management has been touting and receive the better terms from vendors that you would expect, the company should succeed.

The balance sheet appears to be strong enough to give the company time to get its act together. Office Depot ended the year with $955 million, or $1.79 per share, in cash (Please note that there are now 532 million shares outstanding; some data providers are still reporting the pre-merger number of 289 million.)

While there's $1.58 billion in debt, the majority of it doesn't mature until 2019 and beyond. Furthermore, the company has long-term notes receivable -- the result of OfficeMax's sale of timberlands in 2004 -- on the books in the amount of $945 million, which mature in 2020, and render the current debt less onerous.

It's not business as usual in the office-supply business, and management has its work cut out for it, but Office Depot may be worth a look. ODP Chart ODP data by YCharts

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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