Office Depot Inc.'s (>> Office Depot Inc) largest shareholder, Starboard Value LP, has urged the company to explore a sale of its 50% stake in its Mexico joint venture, asking it to immediately seek approval from merger partner OfficeMax Inc. (>> OfficeMax Inc).
Starboard--which has an almost 15% stake in Office Depot--said in a letter to the board that the "significant value" of Office Depot's interest in the Office Depot de Mexico joint venture isn't fully reflected in Office Depot's stock price, reiterating a view it had outlined last year.
Earlier this month, Mexican retailer Grupo Gigante SAB (>> Grupo Gigante, S.A.B. de C.V.) offered to buy Office Depot's stake in the joint venture for the equivalent of $690.5 million. That offer came a day after Office Depot agreed to buy rival office-supply company OfficeMax in a $1.19 billion all-stock deal.
Starboard noted Gigante's offer expires Thursday and urged Office Depot's board to obtain consent from OfficeMax to immediately explore a sale of the joint venture interest to maximize value for shareholders.
The activist hedge fund added it recognizes OfficeMax is potentially conflicted as a sale of the joint venture interest, while beneficial to the combined company, would also be beneficial to Office Depot as a stand-alone business and, therefore, could strengthen the competitor if the merger falls through.
Starboard said OfficeMax's failure to consent to the sale of Office Depot's stake in the joint venture would be "both unreasonable and potentially anti-competitive."
Gigante, long known in Mexico as a food retailer, exited the supermarket business in 2007 via the sale of its 205 grocery stores to Organizacion Soriana SAB (OGZSY, SORIANA.MX). Since then, Grupo Gigante has focused instead on specialized retail stores and real-estate projects.
Starboard revealed a large stake in Office Depot in September and argued the company could improve profitability by implementing various suggestions laid out by the fund. Those included cutting expenses to improve performance, pushing higher-margin products and services, and other moves. Starboard also said Office Depot's performance lagged behind peers OfficeMax and Staples Inc. (>> Staples, Inc.), even though the three companies have similar structures.
In October, Office Depot adopted a shareholder rights plan, or "poison pill," which is designed to deter hostile takeovers. The pill kicks in when any one shareholder with a stake of 15% or more tries to buy the company. Starboard blasted the move, which came soon after it amassed its stake.
And earlier this month, the company reported it had swung to a fourth-quarter loss on declining revenue, with results below Street estimates.
Office Depot's shares closed at $3.99 Tuesday and were inactive premarket. The stock has jumped 32% in the past 12 months.
-Anupreeta Das contributed to this story
Write to Saabira Chaudhuri at firstname.lastname@example.org
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