Office Depot (NASDAQ:ODP) has a plan to transform its business beyond its traditional retail market. The problem is that the company made its first major move toward remaking itself and investors seem to hate it.
The retailer released plans to pivot the company "from a traditional office products retailer to a broader business services and technology products platform." To make that happen Office Depot spent approximately $1 billion to buy CompuCom Systems, Inc., a provider of IT services, products and solutions for enterprise, small, and midsize businesses.
"Technology is the office supply of the future," said Office Depot CEO Gerry Smith in a press release. "...The combination of CompuCom's enterprise IT services with our millions of customers and approximately 1,400 distribution points gives us the credibility and scale to build a sustainable platform and stand apart from the competition. The company will create value for shareholders from a diversified revenue base with a clear opportunity to grow higher value services and business-to-business revenues."
Smith may be excited, but investors clearly were not. Shares dropped dramatically after the deal was made public and they did not recover.
After closing September at $4.54, shares dropped to $4 the day after the acquisition was announced. They kept falling to close the month at $3.10, a near-32% drop, according to data provided by S&P Global Market Intelligence.
Office Depot was not going to survive as just a retailer of office products. Going into technology, in theory, gives it more to sell its existing customer base while also opening up new markets.
Whether that works or not won't be evident for at least a few quarters, if not longer. Shareholders may not like the deal, but if it can turn sales around they will warm to it quickly.
And while the early reactions were bad, they don't reflect the possible success or failure of this acquisition. Office Depot has a new strategy and more to sell. Now it simply has to make the sales and show it can execute on its drastically different business model.