ODP Corp., the Boca Raton-based operator of Office Depot, intends to split the company into a pair of independent, publicly traded firms, opening the way for a potential sale of its retail operation.
The move, announced Wednesday, comes after rival Staples spent the early part of this year trying to take over the company for $2.1 billion, a bid that ODP rejected in January.
But by creating two separate companies, ODP is now positioned to offload its retail operation, which has been shrinking for years. After the Staples deal fizzled, USR Parent, the firm that controls Staples, indicated it would explore the possibility of buying Office Depot’s consumer business, among others.
A spokeswoman for USR Parent said the company had no comment.
In a statement Wednesday, ODP made no mention of selling the retail business. But it said its board of directors believes the separation will let the companies “pursue market opportunities, accelerate growth and unlock significant value for shareholders and all stakeholders.” One of the key benefits: “to pursue specific strategies with more targeted investment opportunities and growth objectives.”
“We believe creating two focused, pure-play companies will unlock significant opportunities by improving our ability to meet the needs of our customers, while better matching assets and investment profiles of both companies to generate greater value for our shareholders,” said Gerry Smith, chief executive officer of ODP.
News of the proposed split drove ODP’s share price up by 8.78%, to $46.20, in NASDAQ trading. The company also announced a $300 million stock buyback plan.
Under the plan to split ODP, which is scheduled to take effect next year, a newly formed company — dubbed for now as “NewCo” — would provide contract services to businesses. It also would own the company’s newly formed B2B digital platform technology business, including BuyerQuest, the announcement said.
ODP’s retail business would be the other independent company, offering consumer and small-business products and services though the existing chain of more than 1,100 Office Depot and OfficeMax locations.
People who currently own stock in ODP would obtain NewCo shares in the form of a special tax-free dividend. Once that is accomplished, ODP shareholders would own 100% of the stock in both of the publicly traded companies.
“In my mind it’s a smart move to make, to diversify while the [financial] markets are quite strong at the moment,” said Sofia Johan, professor of finance at Florida Atlantic University’s College of Business. “This is not something you want to do when the markets are going down.”
She said it makes sense to segregate the retail side from the business-to-business operation because of the “extremely tough” competition from online giants like Amazon.
“You have your laptop, you’re not purchasing a lot of the things they offer to sell,” she said. “All you have to do is go online and find the cheapest price without even stepping out of your bed.”
For years, the company has engaged in a variety of restructuring maneuvers, including cost cutbacks to stay profitable and competitive.
Last May, management announced a long-term plan to eliminate more than 13,000 jobs and close stores in a years-long quest to switch its main business from office-products supplier to a seller of business services and supplies.
The company said it had 1,146 stores at the end of March of this year after closing eight in the first quarter. That’s 149 fewer outlets than at the end of the first quarter of 2020.
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In a major reorganization last June, the name Office Depot was supplanted by ODP Corp. as the parent company. It now oversees three divisions consisting of retail, business solutions and an information technology service called CompuCom, which was acquired in 2017. The latter is the smallest revenue producer of the three, according to the Zacks Investment Research firm.
Last year, the business solutions arm, which will be the predominant business under the new business plan, produced $4.7 billion in revenues, or just below half of the company’s total for 2020. The retail side came in at $4.2 billion.
The IT business, which was the subject of a malware attack in March, has been up for sale since last year. That status remained unaffected by Wednesday’s move, ODP said.
Despite the COVID-19 pandemic, the company is producing profits.
In a separate announcement Wednesday, ODP announced an adjusted first-quarter net profit of $68 million, up from $66 million in the same period of last year.