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Why ODP Stock Popped 17% Monday Morning

By Daniel Miller - Jan 11, 2021 at 12:48PM

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A second attempt to acquire the company was what the doctor ordered Monday morning.

What happened

Shares of The ODP Corporation ( ODP 4.94% ), known primarily for its Office Depot and OfficeMax brands, jumped 16% Monday morning after news surfaced that USR Parent (also known as Staples) offered to buy the office supplies retailer.

So what

USR Parent presented a plan to buy ODP for $40 per share in a cash offer valued at roughly $2.1 billion. It's the latest attempt to synergize the two large office-supplies retailers, and the offer represents more than an 8% premium to ODP's Friday close, and a substantial 61% premium to its average closing price over the past three months.

Man in a home office

Image source: Getty Images.

Now what

The move itself clearly makes sense for ODP investors in terms of value and potential synergy, but there are a couple of things to consider as this potential deal develops.

First, Staples previously tried to purchase Office Depot in a larger $6.3 billion deal that was called off in 2016 due to antitrust concerns. It's possible that five years later, especially considering how COVID-19 has accelerated e-commerce, that the deal would more easily deflect antitrust scrutiny. Second, USR Parent could also increase its valuation and offer if ODP would agree to divest certain units, such as its CompuCom segment.

The deal makes sense, especially now that the office retail business has seen a slight improvement as COVID-19 required so many Americans to suddenly work from home. And if investors feel the price is right, the 16% pop in stock price today seems justified.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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