Wednesday, November 7, 2012

Office Max and Depot: to merge or not to merge

Just this week, investors stocked up on shares of Office Depot and Office Max after an article led to speculation that the rival office supply retailers could potentially merge.
Office Depot rose 19% despite a 3rd quarter loss, while OfficeMax rose 12%, after Bloomberg reported that merging the two companies would be a smart move, according to analysts. This strategy has already spurred renewed investment in this two underperforming companies and there is hope that a recovery plan may emerge.
One of the readings for this week – Going from Global Trends to Corporate Strategy – highlights the notion that as global trends shape the business landscape, they inevitably affect competition among companies. In the case of these companies, there is acknowledgement that it’s a tough industry and consolidation definitely needs to occur, as stated by Mike Balkin. So, what is gained when competitors become partners?
As a frequent shopper of Staples, it is obvious that these other two businesses are in need of a refreshed strategy. By shrinking the size of stores, reducing the number of items it sells and cutting general expenses and advertising costs, it seems obvious to me that there would be a cost savings and shared interests in a merger like this.
Though this merger appears to be a winning strategy, it has not yet been confirmed and its speculation may itself be considered a strategy as evidenced by the increase in shares this week. It is the desire of a majority stakeholder at Office Depot, but there is no deal in place at the moment. Additionally, this may not be a winning strategy if you look at it from the perspective of a decline in the office supply business and increase in competitors that have a broader market such as Target and Walmart. If two underperforming business join as one, there is a real chance you may get one large underperforming store, and you have to wonder if that make anything better?

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