Why People Are Excited About a Staples-Office Depot merger

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By Phil Wahba

It was just a suggestion, but one that investors in Staples and Office Depot seemed to have loved: the two struggling office supplies giants should merge.

Shares in both companies soared on Tuesday after Credit Suisse in a research note recommended they combine forces to better compete against Amazon.com and Wal-Mart Stores and stop declining sales at both.

Credit Suisse analyst Gary Balter estimated that by streamlining their operations, the companies together could save $1.44 billion a year, effectively doubling their combined operating profit by 2017. What’s more, a merged entity would be more strategic about store closings: both Staples and Office Depot are cutting stores by the dozen but often keeping a store that is unprofitable not to give up market share to its rival. That would mean that under a combination, only the best stores would remain.

A merger “makes significant financial and operational sense,” Balter wrote.

Regardless of whether they take Balter’s suggestions, it’s undeniable that both chains need to pick up their game.

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