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The Morning Brief: Starboard Wins with Staples/Office Depot Deal

Score another victory for Jeffrey Smith’s Starboard Value. In a deal urged by the New York activist firm, Staples agreed to acquire rival Office Depot for $6.3 billion. The deal will pay shareholders $7.25 in cash and 0.2188 a share in Staples stock, or about $11 per Office Depot share. That works out to a 44 percent premium over Office Depot’s closing price as of February 2 and a premium of 65 percent over the 90-day average closing price. According to the joint announcement, Staples began discussing a possible acquisition of Office Depot last September. In early December, Starboard disclosed that it held a 6 percent stake in Staples and boosted its position in Office Depot to 9.9 percent. Two weeks ago Smith sent a letter to Staples Chairman and CEO Ronald Sargent insisting that the office products retailer seek a merger with Office Depot.

“For a variety of reasons, we believe that now is the right time to pursue such a transaction, and we urge you to immediately retain a reputable investment bank and legal advisors to assist the board in evaluating, structuring and executing a transaction with Office Depot,” Smith wrote in the open letter. In 2013 Starboard nominees secured three seats on Office Depot’s board, including one held by Smith. He resigned last September after playing a role in selecting the new CEO.


Animal health company Zoetis announced that it agreed to appoint William Doyle, a member of Pershing Square Capital Management’s investment team, to its board of directors. The Pfizer spinoff said it will expand its board to 10 directors and that it will add another independent director in the future that is acceptable to both the company and Pershing Square. Under the deal, Pershing Square, headed by William Ackman, and Sachem Head Capital Management, run by former Pershing Square analyst Scott Ferguson, agreed to certain standstill provisions. Sachem Head said in a separate regulatory filing that the New York-based hedge fund firm, which owns 0.9 percent of Zoetis’ shares, is no longer part of a filing group with Pershing Square. Therefore, it will not file 13D reports with regulators unless, of course, it accumulates at least 5 percent of the shares. Pershing Square owns 8.3 percent of the total shares.


The Credit Suisse Liquid Alternative Beta Index, which tries to reflect the performance of the overall hedge fund industry, declined by 0.31 percent in January. The managed futures strategy surged last month, rising 8.2 percent. Long-short fell 1.24 percent.


Credit Suisse endorsed San Francisco-based Marcato Capital Management’s plan to split Lear Corporation into two separate companies. In a note to clients, the investment bank says the auto seat business and the electrical division “have little synergies and their opposing growth/capital intensity profiles make it challenging for some investors to own and appropriately value” the stock. Credit Suisse, which maintained its Outperform rating and $115 price target, also said the company has “enough balance sheet capacity” to fund a $1 billion repurchase program.

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