Will Staples (SPLS) Stock Gain From Offer to Settle Office Depot Antitrust Concerns?
NEW YORK (TheStreet) -- Staples (SPLS) is considering transferring about $600 million in corporate contracts to Essendant (ESND) to gain regulatory approval to complete the $6.3 billion acquisition of Office Depot (ODP), the Wall Street Journal reports.
The transaction has been under review at the Federal Trade Commission for about 10 months because of antitrust concerns.
Regulators are concerned that the deal will reduce the competition for corporations seeking to buy office supplies in large quantities, the Journal added.
Staples would transfer contracts it has with small resellers to Essendant, formerly known as United Stationers, sources told the Journal.
The office supply retailer will have to divest up to $1.25 billion of Office Depot's annual business to gain regulatory approval, the Journal noted.
Staples stock closed down by 1.41% to $12.60 amid sell-off in the retail sector triggered by several disappointing third quarter financial results.
Staples will report its financial report for the fiscal 2015 third quarter on November 18 before the market open.
Separately, TheStreet Ratings team rates STAPLES INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate STAPLES INC (SPLS) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Net operating cash flow has significantly increased by 100.00% to $0.00 million when compared to the same quarter last year. In addition, STAPLES INC has also vastly surpassed the industry average cash flow growth rate of -10.88%.
- SPLS's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
- SPLS, with its decline in revenue, underperformed when compared the industry average of 9.1%. Since the same quarter one year prior, revenues slightly dropped by 5.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 56.0% when compared to the same quarter one year ago, falling from $81.88 million to $36.00 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Specialty Retail industry and the overall market, STAPLES INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: SPLS
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.