Wednesday, May 25, 2016

Taking Stock in Staples

The word on the street is sell:

"Staples, Office Depot stocks plunge as merger is called off" by Deirdre Fernandes and Megan Woolhouse Globe Staff  May 10, 2016

Staples said it would consider “strategic alternatives” for its European business, cut an additional $300 million of costs by 2018, close more stores, and seek to grab a bigger share of the market for midsize companies by cutting prices and hiring more salespeople.

“It’s going to be a difficult road forward,” said Rajiv Lal, a professor of retailing at Harvard Business School.

The companies are stuck with too much of their money and resources in real estate, employees, and inventory, as demand for their products has shrunk, Lal said.

Were the economy recovering like the government and pre$$ claim, there would be need for such supplies.  

Sure, they can trot out the same tired excuses about online and all, but at the end of the day the size of both companies means they would simply be caught up in a rising tide were the economy rising. They couldn't help but benefit were it really happening. Same with McDonalds. They are so ubiquitous they benefit from spillover.

“They have to go back to the drawing board and think how you need to go forward,” he said.

The failure of the merger is likely to be a more serious blow for Office Depot, which is in a weaker position, said Oliver Wintermantel, a managing director at Evercore International Strategy & Investment Group, based in New York.

Office Depot will “go first and Staples will struggle,” Wintermantel said. “Staples will have to close a lot of stores. I think there will probably be a lot of layoffs.”

Staples, which opened its first store in Brighton in 1986, has been trying to revive its bottom line in recent years. Sales for 2015 fell by 6 percent to $21 billion from $22.5 billion in 2014. Staples also cut costs by $550 million in the last two years.

It laid off more than 1,000 employees between November and January, although it did not disclose exactly where the layoffs had occurred. It has closed more than 300 stores since 2011.

Staples has also been testing new concepts. In April, the company announced a partnership with Boston co-working startup Workbar to convert some of its stores into shared working space.

Related: Workbar to test Staples stores as suburban co-working venues

What's next, a return to tenements

Hey, you kids wouldn't remember what is was like.

Staples now also offers designer office supplies, such as its line created by New York sportswear and accessories designer Cynthia Rowley.

In 2013, the company launched a redesign of its website featuring faster speeds and more personalized product offerings to compete with

The company needs to do more of that, said Ani Collum, a partner and consultant at Retail Concepts in Norwell.

Its traditional business model is crumbling as work environments and consumer behavior evolve, she said.

Staples is still modeled as a one-stop shop for everything office-related and overwhelms customers with its selection, Collum said. It’s an experience that consumers no longer want, she said.

I certainly understand the feeling as I read a Globe.

“They need to think about how to shed this big corporate image,” she said of Staples.

Why after all the pro-corporate garbage would have been fed via the bu$ine$$ pre$$?

The failure of the Staples-Office Depot merger is the latest example of the Obama administration enforcing antitrust regulations. Last week, Halliburton and Baker Hughes abandoned a $34 billion merger after challenges from the Justice Department.

And late last year, General Electric scuttled the $3.3 billion sale of its appliance division to Electrolux of Sweden following complaints from the Justice Department.

Already vacuumed that up.

Last month, Attorney General Loretta Lynch warned about the risks to consumers from consolidation and vowed that the Justice Department, which shares antitrust jurisdiction with the FTC, would oppose problematic deals.

Debbie Feinstein, who heads the competition bureau at the FTC, heralded the ruling as ‘‘great news for business customers.’’ 

It will bring layoffs as the economy is cratering and everyone holds onto their money. That's why revenues are down.

‘‘This deal would eliminate head-to-head competition between Staples and Office Depot, and likely lead to higher prices and lower-quality service for large businesses that buy office supplies,’’ Feinstein said in a statement to the Associated Press.

When a handful of companies control an industry, as across AmeriKa today, what difference does it make whether it is conglomerate #A or #B?


I gue$$ that means the contracts will be canceled.


Staples’ Sargent to testify in merger trial

"Staples Inc. chief executive Ron Sargent’s total compensation of $9.9 million was about $2.5 million less than his 2014 package because he didn’t receive any cash incentive award last year, according to documents the company filed with the US Securities and Exchange Commission Tuesday." 

Took a real hit as his business model is crumbling, 'eh?

Judge hears final arguments on Staples case

Judge faults Staples’ legal strategy in merger bid

"Shares of Staples and Office Depot soared after a federal judge accused the government of trying to bend a witness’s testimony in its case against a merger of the last two major US office-supply chains."

This government would never do that.

Also see:

"Staples says the US government failed to show that the company’s takeover of Office Depot should be blocked and urged a federal judge to dismiss an antitrust lawsuit seeking to scuttle the deal. Diane Sullivan, a lawyer for Staples, told US District Judge Emmet Sullivan in Washington on Tuesday that Staples and Office Depot won’t present any evidence in the trial and that the judge can rule now solely on the government’s failure to make a convincing case that the deal will harm competition. ‘‘They haven’t met their burden,’’ she said, calling the government’s case an ‘‘utter failure.’’ The decision by Staples to decline to present witness testimony now puts the fate of the $6.3 billion takeover in the hands of the judge, who began hearing closing arguments from both sides Tuesday. A decision in favor of the government would spell the end of the merger. During her closing argument, the judge appeared skeptical of some parts of the FTC case. He questioned why the FTC was excluding ink and toner as part of the basket of products at issue in the case, calling it a ‘‘huge issue.’’ He also asked why the agency was focusing only on the biggest corporate customers rather than on smaller ones as well."

I think we know the an$wer.

"Clampdown chills megamerger deals" by Leslie Picker New York Times  April 15, 2016

On Wall Street, the phones have been a little quieter. The workload has been a little lighter. The happy hours have been starting earlier.

For most people, that would be a good thing. But not for deal-hungry lawyers and bankers, who are experiencing a recent slowdown in megadeals. The divergence in the deal market comes largely as a result of a regulatory clampdown.

Over the last year, with shareholder encouragement, companies ventured into large, complex, and risky deals. Last week, the government fought back, in a lawsuit by the Justice Department and new rules from the Treasury Department, to stop many of the transactions.

One lawyer described a depression that set over mergers and acquisitions as a result of those two actions. A banker said that Wall Street had come to a grinding halt. These deal makers requested anonymity, so as not to be seen at odds with the government’s decisions.

During an election year, advisers say, the big, politically unpopular deals may just have to wait.

Once the polerticks are over, they can quietly sail through.

There is plenty of blame to go around. Bankers and executives would argue that with little global economic growth, mergers have been the best way for companies to jump-start their businesses. Lately, though, they say there has been more uncertainty about what the government will and will not approve, resulting in an abatement in activity.

That has been a concern for months, some say, and last week’s government actions, and subsequent deal terminations, merely provided validation.

Obama’s statements on April 5 related to deal making caught Wall Street’s attention, and many turned on their televisions to listen. He spoke about “tax loopholes” and “tax breaks for millionaires.” It became clear that the trend of big inversions — or deals that allowed US companies to move their headquarters abroad for tax purposes — could be over. 

And then he will soon be gone.

Advisers gathered their tax experts to sift through the hundreds of pages of new tax rules released by the Treasury so they could guide their clients appropriately. Even though the rules target inversions, many legal experts say their implications will extend further.

The law firm Kirkland & Ellis said in a note Wednesday, “The proposed regulations are so far-reaching that, if finalized in their current form, they likely will affect the way every multinational corporate group with a US presence does business.”

The firm was referring to new rules regarding so-called earnings stripping, in which a US subsidiary borrows from its foreign parent and uses interest costs from the loan to help shrink its US tax bill.

The drugmakers Pfizer and Allergan called off their merger as a result of the new rules, which also essentially disqualified Allergan as a merger partner for Pfizer because it had made a few too many inversions. 

Related: Pfizer Finds Fountain of Youth 

Government ran it dry?

That day, the Justice Department filed a lawsuit against the combination of Halliburton and Baker Hughes, saying the $35 billion merger would harm competition in the oil field services industry.


"The deal is a sign of pressures on the oil-services industry, which performs much of the oil field work for major energy companies around the world, to reduce costs at a time of lower oil and gas prices...."  

Looks kind of arbitrary to me.

Some deals have been withdrawn before they really got off the ground because of concerns about government scrutiny. In February, United Technologies rebuffed Honeywell’s $90 billion takeover bid in a public dispute surrounding the viability of combining two large industrial conglomerates without antitrust obstacles. Canadian Pacific backed away this week from its pursuit of a fellow railway operator, Norfolk Southern, after the government criticized part of its plan.


Honeywell offer for United Tech worth more than $90 billion
Honeywell abandons bid for United Technologies

ever-optimistic bankers say there is opportunity to be had in all of this.

I just reached for my wallet.

After Pfizer’s and Allergan’s deal was terminated, pharmaceutical stocks rallied as investors speculated which companies would become the next targets. And the factors that led to such rampant deal making last year — slower growth and cheap financing — have not gone away.

It just may be the smaller companies that feel more confident in pulling the trigger.

“I wouldn’t call it a day yet on the M&A wave,” said Profusek of Jones Day.


Who el$e is being allowed to con$olidate?

"Also on Thursday, Charter Communications Inc., which recently acquired Time Warner Cable and Bright House Networks in a $60 billion deal, said it’s planning to integrate Netflix and Hulu into its network. Meanwhile, Comcast Corp. last month began providing direct access to Crackle, an Internet TV network operated by Sony Corp. In fact, pushing Internet TV through the cable box could help cable companies retain their subscribers. If an Internet TV viewer must switch from the cable box to a separate device, there’s a chance he won’t come back. Instead, said Greg Ireland, a TV industry analyst for IDC Corp. of Framingham, “the cable provider can create a nice simple single-user experience,” giving the subscriber a reason to stick around." 

That crackle woke me up

I'm sorry, what is the New York Times $aying?

"After merger with Office Depot dies, Staples shareholders revolt" by Megan Woolhouse and Deirdre Fernandes Globe Staff  May 12, 2016

After its proposed buyout of Office Depot Inc. died Tuesday, Staples Inc. presented investors with Plan B: cutting costs and closing stores, a possible exit from Europe, and a pledge to compete aggressively for mid-size corporate customers in the market for office supplies.

Shareholders voted with their feet.

Staples’ stock fell 18.3 percent Wednesday, the biggest drop in its 27 years as a public company. Office Depot was hit even harder, losing 40.4 percent, also a one-day record.

The Staples sell-off wiped out gains earlier in the year, when the deal was seen as crucial to the survival of both companies.

“Staples is faced with a reorganization if it hopes to survive,” said James V. McTevia, founder of the strategy firm McTevia & Associates in Michigan. “If I were a shareholder, I would come to the conclusion that they need to do something — and do something quickly.”

Staples, the largest US office supply retailer, and number two Office Depot pulled the plug on their marriage plan after a federal judge on Tuesday backed the Federal Trade Commission’s decision to block the merger. The FTC was opposed on the grounds it would reduce competition and jack up prices for big companies.

“They’re doing the right things; it’s just a question of whether it’s going to be enough,” said Anthony Chukumba, an analyst at the North Carolina bank BB&T Capital Markets.

The way consumers and business handle their stationery and other office-supply needs is changing profoundly. With the ability to store data in the cloud, many people have less need for paper and packaging and shipping supplies. At the same time, companies like and Walmart are chomping at Staples’ heels.

I like to read it at breakfast.

This month, Amazon said its recently launched business marketplace generated $1 billion in sales in its first year. Amazon offers products such as computer equipment and office supplies, and the online retailer said it added 300,000 businesses to its customer rolls.

Industry experts differ about whether Staples will be an acquisition target for another retailer or for private equity firms. Private investors eventually want to be able to sell a company and make money, said Joseph Feldman, a senior managing director at Telsey Advisory Group in New York.

“They want a path to an exit,” Feldman said. “But there’s concern that this is a very challenged industry and there may not be an exit strategy.”

Like the wars?

McTevia, the Michigan consultant — he specializes in crisis management — said Staples is ripe for a takeover by a firm looking for a distressed business to buy, overhaul, and sell at a profit. The climate is right, he said, because many investment firms are “sitting on a lot of money, on the sidelines.” 

I was wondering where it all went, and how ironic considering Staples was started by private equity Romney.

“I wouldn’t be surprised if they’re considering all the options available,” he said of Staples.

It’s imperative for Staples to find a way to modernize and improve operations to compete with online retailers and remain relevant to a younger generation of customers, said Ben Gomes-Casseres, a professor of strategy at Brandeis International Business School.

Staples has been testing new concepts, such as a partnership with the Boston coworking startup Workbar, to convert some stores into shared work space.

And in 2013, the company redesigned with faster speeds and more personalized product offerings, to better compete with

But, Gomes-Casseres said, more needs to be done. Investors’ reaction to the nixed merger signaled “that people really think that these two don’t have a chance of surviving well enough on their own.”

“If they don’t find a way to get into the modern flow of e-commerce,” he said, Staples “will slowly fritter away.”

And what are they doing? 

Shuffling deck chairs.


Time to man the lifeboats!

"Staples reportedly laying off hundreds, but stays mum" by Megan Woolhouse Globe Staff  January 26, 2016

Staples Inc. is laying off hundreds of workers at its Framingham headquarters, a move that analysts said suggests the company is preparing for the likelihood its planned merger with Office Depot Inc. won’t win regulatory approval.

The job cuts were confirmed by a current employee and a former employee, both of whom asked for anonymity due to job and severance concerns. Staples spokesman Mark Cautela would not comment on layoffs, pointing only to a press release issued Monday in which chief executive Ron Sargent said the company was “streamlining.”

Staples has faced competition from Walmart Stores Inc., Target Corp., and online retailers, and it has also seen its revenues decline. Since 2011, the company’s annual sales have declined 9 percent. Over that period, the company has cut its full-time workforce by 16 percent. The stock, however, is down more than half from its 52-week high of $19.40

Staples wants to merge with rival Office Depot because it is losing market share to new competitors, such as, analysts said.

Charles Kane, a senior lecturer in international finance and entrepreneurial studies at the MIT Sloan School of Management, said, “I think it’s bad news, more bad news unfortunately for Staples. They’re in a very difficult market space competing with all kinds of new players. It sounds to me like this merger is more of a desperate thing.”

Staples also laid off employees in September 2013, saying only that it had eliminated a number of US jobs, most of them leadership positions at its corporate headquarters. Staples at the time refused to provide details, including how many people had been laid off....


Globe got a head count:

"Over 1,000 lost jobs at Staples, says company" by Megan Woolhouse Globe Staff  March 04, 2016

Staples Inc. executives laid off more than 1,000 employees between November and January, acknowledging the job losses for the first time as the company vigorously pursues a merger with its rival, Office Depot Inc.

Staples executives disclosed the layoffs in a conference call with analysts Friday after the company released earnings. A spokesman said the company did not track where the layoffs occurred, but current and former employees said in January that hundreds lost jobs at the Framingham headquarters.

In the call, Staples’ chief executive, Ronald Sargent, told analysts that the company would fight the Federal Trade Commission’s efforts to block the Office Depot deal. The proposed merger would not result in “higher prices for sticky notes,” he said, calling the FTC’s opposition to the merger flawed and evidence of its “deep misunderstanding” of the office supplies marketplace.

“Competition has materially intensified, not lessened,” Sargent said, noting the rise of Inc. and other competitors. “This has been a long and surprisingly frustrating road.”

Staples has sought the merger as part of a broader strategy to help revive a flagging business....


RelatedStaples-Office Depot merger approved in Europe, with concessions

Then they turned around and blocked it.

Better off ordering it online:

"Amazon stock dips as quarterly data lag" by Spencer Soper Bloomberg News  January 29, 2016

SEATTLE —’s holiday quarter profit missed estimates on stepped-up spending for new technology and delivery services, taking the shine off a year marked by record earnings and an aggressive expansion. The Web retailer’s shares fell as much as 15 percent.

They lied to keep the stock price up. 

Happy New Year!

Fourth-quarter net income was $482 million, Amazon said in a statement Thursday, short of analysts’ average projection for $742.9 million, while revenue rose.

That's a pretty steep drop.

The result was a surprise for investors who have become accustomed to Amazon’s ability to boost sales by spending heavily on delivery infrastructure and new products. The key question is whether the Seattle-based company can readjust its investments in the face of weaker-than-anticipated sales. Still, chief executive Jeff Bezos appears determined to show that Amazon can keep bringing in more money — he pulled back on spending last year to deliver a surprise jump in earnings and will be showing Amazon’s first Super Bowl commercial next week.

“When revenue goes up by more than $6 billion how are earnings only going up by 55 cents?” said Michael Pachter, an analyst at Wedbush Securities Inc. “That’s what investors are wondering right now.”

Looks to me like the numbers are getting shuffled around during shipping.

Amazon’s shares, which more than doubled last year, fell as much as 15 percent in extended trading. The share slide erased more than $5 billion from Bezos’s net worth, to $50.3 billion.

This was the first shopping season following Amazon’s Prime Day promotion in July, an effort to boost the company’s $99-a- year subscriptions that include delivery discounts and convert occasional shoppers into devotees. It was also the first season that Amazon offered same-day deliveries in most big cities around the country to cater to last-minute shoppers.

Not available in all areas. Please check skin color.

E-commerce is on track to make up 9.8 percent of all US retail sales in 2019, up from 7.1 percent in 2015, according to EMarketer.

At the end of 2015, there were more than 54 million Prime members, who get two-day deliveries and access to online movies and music, according to Consumer Intelligence Research Partners. That’s an increase of 35 percent, the researcher said, adding that the average Prime shopper spends $1,100 annually with Amazon, compared with $600 for nonmembers.

Are you Primed?

For the first quarter, Amazon forecast revenue of $26.5 billion to $29 billion, compared with analysts’ average estimates of $27.6 billion.

One bright spot was Amazon Web Services, the company’s cloud-computing division, which had fourth-quarter sales of $2.4 billion, up 69 percent from a year earlier. The unit, built on Amazon’s expertise in running its Web store and handing massive amounts of data and analysis, represents a fast-growing and profitable part of Amazon’s business, even though it makes up only about 7 percent of revenue, the company said.

On the spending side, operating expenses increased 21 percent to $34.6 billion, Amazon said. Bezos’s biggest challenge is balancing Wall Street’s thirst for profits against his own ambitions of using new technology — such as unmanned drones and intelligent household gadgets.

Bezos is also eager to replicate his US success abroad, including challenging Flipkart Online Services Pvt. for India’s fast-growing e-commerce industry.

I've got a flip for ya.



"Amazon has launched a self-publishing platform for video creators, a move that could make money for the company and budding filmmakers in the same way YouTube has created a community of online celebrities. Amazon Video Direct, which kicked off Tuesday, shares money with video creators through the method they choose: ads, subscriptions, rentals, or simply by the number of hours streamed to tens of millions of subscribers of Amazon Prime, its two-day shipping service. Amazon keeps about half the revenue, or if the video is restricted to Prime, it pays a set fee of 15 cents per hour viewed in the United States. Several production companies made videos available Tuesday including Baby Einstein, Pro Guitar Lessons, and Conde Nast. The service allows creators to publish videos in the United States, Great Britain, Germany, Japan, and Austria."

I don't know about Austria because the timing of the announcement came as a surprise to many Austrians.

Also see

Amazon looks to open more brick-and-mortar stores
Backstep on Amazon good news for Barnes & Noble
Amazon expands its Alexa line of voice-controlled devices

Sorry the delivery took so long; must be the warehouse workers.


Staples CEO to step down after failed Office Depot deal

The new Easy? Staples launches same-day delivery