What: Shares of office supply retailer Office Depot (NASDAQ:ODP) rose by 18.7% during October, according to S&P Capital IQ data. After the stock fell hard during September as the company's merger with Staples (NASDAQ:SPLS) received heavy scrutiny from regulators, some signs emerged in October that the deal is on track.
So what: Staples agreed to acquire Office Depot in February for $6.3 billion, valuing Office Depot at $11 per share. After initially surging on the news, the stock began to slump in July as regulatory scrutiny threatened to derail the deal. Regulators in both the U.S. and Europe are examining the merger, worried that large business customers will face higher prices. Shares of Office Depot still sit well below the offer price, trading for around $7.50 per share, even after the October surge.
The month of October brought with it some good news for Office Depot. Bloomberg reported that Staples is exploring selling assets in order to help the deal go through, with the divestiture of Office Max, which was acquired by Office Depot in 2013, one possibility mentioned. Later in the month, a report from Bank of America stated that Staples was closer to getting clearance from regulators for the deal. All of this points to a serious effort being undertaken by Staples to make the merger work.
Now what: It may be months before the merger is ultimately approved or denied, but after investors grew increasingly pessimistic through September, optimism that the deal will ultimately go through started to return in October. Office Depot stock is still far below the offer price, though, so the market still seems to be betting against the deal.
The rise of online retail could make this merger more palatable for regulators. Staples and Office Depot attempted to merge in 1997, but that deal was ultimately shut down. With online retail far more prominent today, Staples may not need to make too many concessions to get regulatory approval.
There's still a lot of uncertainty surrounding the Staples/Office Depot merger, but with Office Depot's stock surging in October, the market's pessimism isn't as strong as it was earlier in the year.
Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.