Staples: Voting "Yes" or "No" matters
Sycamore Partners has agreed to acquire Staples (NASDAQ:SPLS) for $10.25 a share, but is it fair? The offer at an ~20% premium to the pre-speculation price represents an approximate 5.3x EBITDA multiple. Neither the premium or multiple are spectacular. Based on our analysis, buying SPLS voting against the deal could provide attractive return potential in its own right.
Barron's recently ran an article quoting a large shareholders who views the deal unfavorably:
'How is this in the best interests of shareholders?' asks Richard Pzena, the CEO of Pzena Investment Management in New York. His firm was the fourth-largest Staples holder at the end of March with 31 million shares, a nearly 5% stake in the office supplies retailer. 'Based on what we know so far, we're likely to vote against it.'
Understanding the Business Vs. Market Sentiment
What is Staples? If you think it's the local big box office supply store where you buy paper or print cartridges, you only get a C+. Most of the business is actually business-to-business delivery to office/corporate clients who tend to be sticky, service oriented and generate significant free cash flow. Amazon (NASDAQ:AMZN) is not a big competitor in this niche. They're not set up to deliver 50 lbs of paper, office supplies, or breakroom facilities the next day. Staples does just that.
