Starboard Value Turns Aggressive in Activist Fight Against Office Depot’s Management

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Starboard Value, a hedge fund that owns approximately 15% of Office Depot’s ODP equity, publicized a letter on Monday agitating for change in the company’s board and executive team. Starboard had already proposed six of its own board nominees earlier in March, citing the 10 current board members’ lack of retail experience.

However, this letter was notable for its conspicuously harsher tone. In addition to saying that it was “uncomfortable” with the board’s execution and experience, Starboard also singled out Chairman and CEO Neil Austrian for his lack of “relevant retail experience” outside of Office Depot and emphasized the firm’s poor performance during his tenure. Starboard criticized the board and executives for ignoring the fund’s suggestions, which includes operational proposals regarding cost-reduction initiatives and capital allocation advice, such as the divestment of Office Depot’s 50% stake in Office Depot de Mexico. Starboard stated that it supported the proposed merger of Office Depot and OfficeMax , but also argued that the fund could have negotiated better merger terms for Office Depot if it were involved.

Office Depot has been assigned a poor stewardship rating and echo many of Starboard’s concerns regarding past governance. But it’s unlikely that Starboard will gain much traction with investors or the board, since BC Partners, a private equity group that owns a 22% voting interest in Office Depot, has shown no signs of turning against management.

Additionally, investors would be against disruption that could risk the merger. That said, Starboard also reminded investors that the merger still has regulatory uncertainty, and the fund could gain more traction if regulators block the merger, which is unlikely, but would be highly negative for investors.

At the minimum, though, Starboard will bring up these concerns during Office Depot’s 2013 annual meeting (the meeting date was delayed, and is currently unknown), and it could affect deliberations regarding who will lead the post-merger company.

 

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