Staples urged to combine with Office Depot

Activist hedge fund Starboard Value LP wants Staples to combine with Office Depot.

Last month Starboard disclosed in a regulatory filing that it purchased a 5.1 percent stake in Staples Inc. and boosted its stake in Office Depot Inc., which had combined with OfficeMax in a $1.2 billion deal in 2013.

Starboard has a history of buying stakes in companies and shaking them up. The New York-based hedge fund successfully pushed Darden Restaurants, the owner of Red Lobster, to remove its board of directors.

In a letter to Staples CEO Ronald Sargent and the office supply company’s board, Starboard said that it wants Staples to immediately hire an investment bank and legal advisers to help the board evaluate, structure and execute a transaction with Office Depot, which is based in Boca Raton, Florida.

Starboard said that Staples’ stock price is up more than 50 percent since speculation of a possible deal with Office Depot began in September. The hedge fund said that if Staples doesn’t combine with Office Depot, it would expect Framingham, Massachusetts-based Staples’ stock to drop to reflect its stand-alone value.

Starboard added that if Staples decides not to seriously pursue a transaction with Office Depot that “it would be a clear sign that significant leadership change is needed at Staples.”

Staples said in a statement on Tuesday that it has met with Starboard several times to talk about their ideas and that its board is committed to taking actions that are in the best interests of all of its shareholders. The company said that it “welcomes continued, constructive dialogue with shareholders focused on enhancing the value of Staples.”