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Don't Bet on Amazon Buying Office Depot

Friday, July 28, 2017  
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There has been recent speculation that Staples’ acquisition by Sycamore Partners could pave the way for Amazon to buy Office Depot.

 

According to The Street, Staples going private would make it easier for Office Depot to be acquired by Amazon, although it is difficult to see how the competitive situation changes significantly by Staples being delisted from the stock market.

 

It’s true that Amazon’s move to buy Whole Foods Market for $14 billion has generated interest in the e-tailer’s strategy for omnichannel, and we tentatively suggested this didn’t rule out a move for Office Depot or Staples.

 

But, to be honest, that is a very long shot. As we said last year, when there were suggestions that Amazon could do worse than buying Staples, Amazon doesn’t need to buy big-box stores – even if it does expand its bricks-and-mortar presence into the world of business supplies, then it would probably be a concept that brings the ‘Amazon experience’, similar to the pick-up points that is has developed at several US university campuses. With Whole Foods, Amazon is looking to revolutionize fresh food shopping – would buying Staples or Office Depot retail outlets revolutionize business supplies purchasing? Unlikely.

 

On the delivery side, while we’ve not been afforded visibility into the performance of Amazon Business since April 2016, the US Communities contract win and recent developments in legislation for online marketplaces for federal purchasing underline the influence that Amazon is having, especially in the public sector. It is already moving the needle in terms of supplies procurement; and it’s being this kind of catalyst for change which fits in with Amazon’s ethos, not buying ‘old’ business models.

 

Also, if you look at the job vacancies on the Amazon Business website, there are more than 300 positions open, including software developers, content marketing managers, and sales roles for enterprise, public sector and small business customers as well as for vertical markets. This is Amazon Business building things out by itself, and it would be surprising if there was a lack of top talent wishing to join the organization.

 

So, does that mean that Staples and Office Depot will now look to rekindle their merger attempts, as also has been suggested in the financial press? There’s certainly credibility to the argument that the FTC got it wrong when it opposed the deal, but it would still be an extremely high-risk move to revisit this merger so shortly afterwards.

 

From a Staples point of view, at least in a business sense, it should move on. It needs to look at transformational M&A activity – buying a Grainger or a Cintas, for example, in the MRO/facilities categories – not consolidating in the declining office products channel.

 

For Office Depot, there are still question marks about its long-term future. The Staples/Sycamore announcement has fuelled speculation that it could also be taken private, and its share price has risen by around 30% since the first reports back in April about the possibility of Staples being acquired by private equity. The bottom-line synergies from the OfficeMax acquisition – which have so far offset sales declines – are winding down as expected. It was always a question of ‘what happens after that?’, and so far we don’t have the answer to that. - (OPI)

 

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