European Union regulators have opened an investigation into the Staples/Office Depo merger as they are concerned the deal could result in increased prices and that it is anti-competitive, The Wall Street Journal reports.
Shares of Staples are flat in pre-market trading on Friday morning and shares of Office Depot are down by 5.85% to $6.92.
The deal was announced in February and will leave the U.S. with only one chain office supply store. There were previously three chain stores in the U.S. but that number declined in 2013 when Office Depot acquired Office Max, The Journal added.
U.S., Canadian and European regulators have not yet approved the deal.
EU regulators announced this morning that their preliminary investigation indicates that competition in the office supply market may be negatively impacted by the merger.
"The transaction could eliminate an important competitor and reduce the choice of suitable suppliers in already concentrated markets, which could lead to price increases," the European Commission said, The Journal noted.
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 solid stock price performance. 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 0.26%.
- 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 10.5%. 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