DealBook: Activist Fund Takes Aim at Office Depot

Robert Caplin for The New York TimesAn Office Depot in Hoboken, N.J.

Starboard Value, an activist hedge fund, said on Monday that it had taken a 13.3 percent stake in Office Depot, and it called on the struggling retailer to shift its strategy to one that reduces spending, focuses on smaller stores and sells noncore assets.

In a public letter to Office Depot’s board, Starboard said that its stake made the hedge fund the company’s biggest shareholder. It argued that Office Depot had significantly trailed competitors like OfficeMax and Staples in both operating and earnings margins, as well as stock price performance.

While Starboard acknowledged that Office Depot’s management had already taken some steps to improve the company’s performance, it argued that the efforts had yet to bear fruit.

Related Links

• Documents: Starboard Value L.P. press release

“While these initiatives represent a step in the right direction, they clearly have not been adequate enough, as is evidenced by the dramatic decline in profitability and underperformance compared to peers,” Jeffrey C. Smith, Starboard’s chief executive, wrote in the letter.

One potential way to raise money — or “unlock value,” in hedge fund parlance — is for Office Depot to sell its 50 percent stake in its Mexican joint venture, which Starboard claimed had been ignored by investors. Mr. Smith estimated that the holding could be worth more than $900 million, exceeding Office Depot’s market value of $704.4 million.

The news of Starboard’s letter was first reported in The Wall Street Journal.

Shares in Office Depot were up 10.5 percent in premarket trading on Monday.

Article source: http://dealbook.nytimes.com/2012/09/17/activist-fund-takes-aim-at-office-depot/?partner=rss&emc=rss