While for some companies, a drop in share price is due to a number of factors, for Office Depot (NASDAQ:ODP), there was only one.
Shares in the office-supply chain plummeted in May after a federal judge blocked its planned merger with Staples (NASDAQ:SPLS). It was a crushing blow to both companies that left them without a clear path forward.
Both Staples and Office Depot had more or less put all their eggs in the merger basket. Being allowed to combine would have let the two rivals consolidate back-office expenses while closing stores. It also would have created a bigger company with more purchasing power, and a stronger rival for online retailers.
Those hopes, however, were dashed in May when a federal judge sided with United States antitrust officials who believed the deal created a monopoly. According to the ruling by U.S. District Judge Emmet Sullivan, as reported by Bloomberg, the Federal Trade Commission met its "burden of showing that there is a reasonable probability that the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large business-to-business customers."
As you can see from the chart, investors had pegged their hopes on the merger being approved. After it was denied, Office Depot shares dropped considerably, and did not recover for the rest of the year.
After opening 2016 at $5.51, shares in the office supply retailer closed at $4.52, a nearly 18% drop, according to data from S&P Global Market Intelligence. It's hard, if not impossible, to peg that fall on anything other than the failed merger.
Office Depot has to show it has a path to move forward. The company has bounced back a bit from its 2016 lows, but the chain has a long way to go before shareholders will believe it has a long-term future.
The chain has a three-year strategic turnaround plan which CEO Roland Smith said was progressing well during his remarks in the Q3 earnings release. It's worth noting that Smith has already announced that he will retire at some point in 2017, so he will not be around to execute the plan he seems to believe in, but he laid out the company's progress nonetheless:
We announced a deal to sell our business in Europe and have a process underway to sell substantially all of the remaining international businesses. We also realigned our organization to create a more efficient and effective operating structure that is focused on aggressively implementing a number of growth and profitability initiatives in our North American business. We are recovering quickly from the disruption caused by the protracted Staples acquisition attempt, and I'm very pleased with both our progress and financial results.
That's essentially what a CEO has to say, but a plan and actually achieving results are very different things. Office Depot has some runway, and selling its overseas operations will give it more. But at some point, the chain needs to show sales growth and a sustainable model that does not rely on a merger with Staples.