What happened

Shares of The ODP Corporation (NASDAQ:ODP) gained 45.7% in January 2021, according to data from S&P Global Market Intelligence. The Office Depot parent received an unsolicited buyout offer, rejected it, and countered with a slightly different merger idea. Investors embraced the whole process.

So what

On Jan. 11, ODP received a buyout proposal at $40 per share from USR Parent, which is the current parent company of rival office-supplies retailer Staples. ODP's board of directors thought about this offer for a minute, rejected it, and returned a different merger proposal the next week.

In this updated proposal, ODP suggested that Staples could join forces with Office Depot's consumer-facing retail and e-commerce operations in a new joint venture, or perhaps even a spin-out merger of some sort. ODP would hold on to its corporate office-supplies business and work toward completing the sale of the digital-services segment CompuCom.

ODP's stock surged 24% higher when the original offer from Staples was presented and stayed at that general level for the rest of the month.

An office worker looks at a large mural of jigsaw puzzle pieces, mostly unconnected.

Image source: Getty Images.

Now what

The office-supplies retail industry has consolidated dramatically in recent years, boiling down to a showdown between Staples and Office Depot under the shadow of e-commerce giant Amazon. ODP's response to the Staples offer weighs the dramatic changes in this corner of the retail sector against regulatory concerns and business risks.

The private investment firms behind Staples have not yet responded to ODP's counteroffer and might wait until ODP reports fourth-quarter earnings near the end of February. Management has promised to use that platform to share more detail on their growth-boosting ideas in the business-to-business segment.

ODP's stock has gained 92% over the last 52 weeks but is still trading at very reasonable valuation ratios like 10 times forward earnings and 0.2 times trailing sales. Whether the company ends up joining forces with Staples or not, investors are hoping for some dramatic improvements to Office Depot's long-term business plan.

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