Staples in $6.9-bn sale to PE firm Sycamore

Office-supply chain might re-emerge as modern seller of business services

Sycamore Partners, the private equity firm that still has faith in retail, is making its biggest bet yet.

On Wednesday, it agreed to acquire Staples for about $6.9 billion in one of the largest retail deals of the year, a wager that the office-supply chain can re-emerge as a modern seller of business services. 

The transaction lets Staples escape Wall Street’s glare and focus on a turnaround plan that includes reducing its retail footprint. But it’s hard to tell how the buyout will fix its fundamental challenges, including the rapid migration of customers to Amazon.com  and slackening demand for traditional office supplies.

“This doesn’t change the industry dynamics or the pressures the retailer faces,” said Seema Shah, an analyst at Bloomberg Intelligence.

Sycamore, saying it was attracted to Staples’ “iconic brand,” is paying $10.25 a share for the retailer, according to Wednesday’s statement. That represents a 12 per cent premium to its share price on Tuesday, before reports surfaced that the transaction was close to be being completed.

Staples shares climbed as much as 2.1 per cent on Thursday to $10.14 — still short of the acquisition price.

At least one large investor was disappointed by the offer. GoodHaven Capital Management co-portfolio manager Keith Trauner, whose firm owns 1.2 million shares, thinks Staples should be valued more like an e-commerce player.

The company has made lots of progress pivoting away from physical stores, with about 60 per cent of revenue coming from online orders, he said. A price in the low- to mid-teens would be more appropriate, he said.

“You have private equity coming in right at the peak of pessimism on the entire industry and saying we’re paying a modest premium to the recent trading price and you should be happy,” Trauner said. “The reality is, if we’re right and Staples is approaching an inflection point where the online business is about to start to grow a little bit and offset the decline on the retail side, the valuation should be much higher.”

The deal caps more than a year of turmoil for Staples, which was thwarted in an attempt to make its own acquisition in May 2016. The company tried to buy Office Depot for $6.3 billion to unify the two largest office-supply sellers, but the transaction was opposed by antitrust regulators.