KeyBanc analyst upgrades OfficeMax, Office Depot

KeyBanc analyst upgrades OfficeMax and Office Depot on benefits of merger, shares rise

Associated Press

NEW YORK (AP) -- Now is the time to buy Office Depot Inc. and OfficeMax, according to a KeyBanc Capital Markets analyst. The two companies are embarking on a merger, and that should be good for both, said analyst Bradley B. Thomas.

Office suppliers have faced a tough industry landscape, with competition from online retailers and discount stores increasing, even as many people and small businesses cut back on buying supplies. The merger, announced in February, is one way the companies are trying to deal with industry troubles.

While there is still a lot that is unclear about the merger — namely, who will be CEO and where the headquarters will be — Thomas said once those details are cleared up, the stock should rise.

"We expect the stocks' outlooks to improve once there is an official 'story' and a 'storyteller' in place," Thomas wrote.

Another question mark: whether the FTC, which nixed a Staples and Office Depot merger in 1997, will approve the deal. Thomas thinks it is likely to happen, since "industry competitive dynamics have changed greatly" since 1997, he said.

If the merger goes through, it should help earnings for both companies and for the combined company, Thomas said, since they will be able to cut costs and have "significant" financial flexibility.

He upgraded Office Depot Inc. and OfficeMax to "Buy" from "Hold."

OfficeMax shares rose 24 cents, or 2 percent, to $12.01 in afternoon trading. The stock has traded between $4.10 and $14.92 in the past 52 weeks. Office Depot rose 9 cents, or 2.1 percent, to $4.10. That stock has traded between $1.51 and $6.10 during the past 52 weeks.

Staples shares rose 5 cents to $13.45.

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