Office Suppliers Steal the Spotlight With M&A Buzz

Office supply retailers stole investor attention on Tuesday morning. Shares of OfficeMax (NYSE:OMX) and Office Depot (NYSE:ODP) soared after The Wall Street Journal reported that the two companies were engaged in merger talks. Both companies were up about 28 percent in morning trading.

The prospect of consolidation in the office supply industry is not necessarily a new idea. Analysts have indicated that a merger would help against mounting competition from the likes of Amazon (NASDAQ:AMZN), which has stolen sales from budget-conscious consumers.

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The financial crisis was also particularly unkind to OfficeMax, which recorded losses of $21.90 per share in 2008. The stock price collapsed from over $50 to below $10 in less than a year. Here’s a quick look at how the company has performed over the past few years.

Fiscal Year 2007 2008 2009 2010 2011
Revenue ($) in millions 9,082 8,267 7,212 7,150 7,121
Diluted EPS ($) 2.66 (21.90) (0.03) 0.79 0.38

Shares of Staples (NASDAQ:SPLS) also climbed as much as 14.9 percent in morning trading as the markets digested the buzz. Staples is the largest of the three major brick-and-mortar office retailers and was previously barred from a merger attempt because of antitrust concerns.

A research note from Oppenheimer, seen by Barron’ssuggested that more rationalized competition will actually be good for Staples. Analysts at Janney Capital Markets were even more bullish, arguing that a merger would distract OfficeMax and Office Depot with integration activities, providing a window of opportunity for Staples.

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