Activist investor details changes it seeks for Office Depot
Activist investor Starboard Value filed a 100-plus page white paper with regulators Monday detailing what it thinks is wrong with Office Depot and proposed plans for "renewal and reinvigoration" of the Boca Raton-based company.
Office Depot has proposed to merge with Naperville, Illinois-based rival OfficeMax in an all-stock deal valued at $976 million.
The filing is part of an ongoing campaign to convince Office Depot stockholders to vote for Starboard-backed directors instead of the slate of directors proposed by Office Depot.
Starboard is one of Office Depot's largest shareholders with nearly 15 percent of the retailer's stock.
"Office Depot is losing its customers, relevancy, and viability as an office products and services retailer," Starboard Value said in the filing.
In response, Office Depot spokesman Brian Levine pointed to Office Depot's own securities filing in which it called Starboard's move to take control of the board disruptive at a time "when there is a clear need for efficient and focused execution of the merger process."
Office Depot said Starboard's "plan" is "not only deeply flawed, but threatens to undo much of the core operational improvements put in place."
Starboard said Office Depot, the nation's No. 2 office supply retailer, has under performed compared with No. 3 OfficeMax and Staples because management has not reduced spending enough to offset revenue declines. The private equity fund pointed to $160 million of information technology and finance expenses it said exceed the industry standard.
"Advertising expenses are excessive and inefficient," Starboard Value also said in the white paper.
Office Depot said Starboard's proposal to cut 60 percent of its IT budget and 50 percent of the finance budget would have a "severe impact" on daily operations.
"These are the kinds of ideas that would significantly set back the business and destroy much of the value inherent in the merger," Office Depot said in a filing on Friday.
Office Depot is losing market share to Staples, the industry leader, Starboard said. While Staples has gained 6 percent in market share since 2007, Office Depot's market share has declined 4 percent, according to Starboard.
Starboard urged more widespread cost-cutting, wants the company's advertising mix re-evaluated, and is pushing for stores to be converted to a medium-sized format.
Office Depot has been cutting its reliance on big-box stores since 2011, but chief executive Neil Austrian said during last week's earnings conference call the company had put the reductions on hold pending the merger.
Office Depot stockholders will meet in Boca Raton Aug. 21 for the company's annual meeting where they will elect directors.
Office Depot shares declined 3 cents Monday to $4.38.
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