USR Parent (Staples) proposes to buy ODP for $40/share in cash

• USR Parent proposes to acquire 100% of the issued and outstanding common stock of The ODP Corporation (NASDAQ:ODP) for $40.00 per share in cash.
• This represents a 61% premium over ODP's average closing price during the immediately preceding 90 trading days.
• USR Parent has sufficient resources to finance the transaction. With respect to regulatory approvals, they are prepared to take all necessary measures to divest ODP's B2B Business to a FTC approved and qualified buyer concurrently with the closing of the overall transaction.
• USR Parent intends is to commence a public, all-cash tender offer for 100% of ODP's outstanding shares of common stock in March 2021 in the event they cannot reach a negotiated agreement with ODP.
• ODP Shares +10.9% pre-market.
• Update: ODP +18.6% confirms receipt of proposal from Staples.

Comments

[stanley goodspeed]

While I prefer not sell at all and grow the company, I agree that around $60

is the lowest reasonable price.

$40 is a joke.

[stanley goodspeed]

Just sell the retail stores for $2 billion and keep everything else.

Then use a portion of the proceeds to buy back stock.

[dude2000]

what was the previous offer Staples made 4 years ago? $6bn?

[Lowcountry Nest Egg]

As an ODP investor, I object to the $40 price offer for ODP. Given that over the past 11 quarters since the beginning of 2018, ODP has generated relatively steady EBITDA of $550 - $600M per year; cumulative cash from operations of almost $1.5B; while spending less than $400M aggregate on capital expenditures, resulting in an aggregate $1.1B in free cash flow, or ~$100M per quarter. At $40 per share, that equates to a free-cash-flow yield of 19% per year on a takeout offer priced at 3.2x LTM EBITDA.

With most companies in the broader market commanding EBITDA multiples of 10x or more, a takeout offer on ODP should at least offer a modest 5.5x multiple on a conservative-low $500M per year (more than 10% lower than ODP's average over the past three years), or $2.75B TEV, which equates to $59 per share.

I will oppose any lesser offer and hope that others will as well.

[Lowcountry Nest Egg]

Presuming the above-noted 10% decrease in operations to $500M EBITDA per year:

ODP should then generate, after ~$100M per year aggregate cash interest and taxes, $400M per year cash-from-ops. After expending a conservative-high $150M per capx, and after returning to the normal $1/share (2.5% yield) dividend, that still leaves a conservative-low ~$200M per year of post-dividend, post-capx FCF for share repurchase (without dipping into the ample $400M net cash). At USR's $40 offer, that amounts to 5M shares repurchased per year, while still leaving the pristine balance sheet exactly as it is now.

The point: I would much prefer that ODP Board and management execute that strategy. In two years, the reduced market cap would be $1.6B, with a TEV of $1.2B, or 2.4x EBITDA of $500M.

Another three years further along, and I could be the sole remaining shareholder, having received my annual 2.5% dividend, but now entitled to sweep the entire (and conservative-low) $250M annual FCF into my pocket. Unlikely as that is, for obvious reasons, that is my strong preference.

[ussdotsons]

@lowcountry questioning I mean YOU are RIGHT. This would be a steal at $40. And, if it goes thru, I'll wonder how much the principles got kicked back to push it!!!

[Lowcountry Nest Egg]

Correction: it would take 8 more years to completely take out all equity at the $40 per share price point (while retaining the existing $400M net cash balance sheet). Sorry for the error.

[AbVH]

the offer will be raised...

[Lowcountry Nest Egg]

@AbVH At the $40 offer, ODP trades at $2.1B market cap and $1.7B TEV. That equates to a 9 P/E on F21 and 3.2x multiple on LTM EBITDA, clearly inadequate for a takeout offer.

I would expect ODP to reject the deal and for USR to gladly up the bid.

[christof2014]

This offer needs to be raised.