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Office Depot Inc (NYSE:ODP) – Merger To Result Into Cost Synergy

Boston, MA 10/14/2013 (wallstreetpr) – Office Depot Inc (NYSE:ODP) is a global supplier of office products and services, which operates in three different business segments:North American Business Solutions Division, International Division, and North American Retail Division.

The prior announcement of the merger between the second and third largest office supplies retailer in the U.S will see a positive yield. The positive yield is attributed to the reduction in cost, as synergies in terms of cost will be beneficial to ODP and OMX.

The merger will not only bring the efficiency in terms of the operations, but will also be beneficial in reducing fixed cost. Since, both these companies operate in the same market, we believe closing of some of the existing stores to garner a better market share would be an additional cost benefit.

We are of the view that the merger will change the business model in terms of reach and cost benefits. In hindsight, the projection benefit is seen around $400 million – $600 million, in additional to saving in fixed costs. Fixed cost benefit is estimated since, both these companies have around a few hundred overlapping stores within a radius of 2 miles in key markets, and closing of these would not only lower the fixed cost but would also help in improving operational efficiency. Reduction in cost (variable & Fixed) will be good for the merged business, as it can deploy the cash in a more effective manner in core business activities to developed customer loyalty.

The combined entity would have a revenue of around $18 billion, and would give tough competition to the largest player in the market, Staples Inc., who had revenue of about $25 billion. We believe that the merger would help the company to benefit in terms of reach, cost management, and effective deployment of capital.

Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.

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