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Staples to go Private After $6.9 Billion Buyout By Sycamore

Putting an end to all speculation, Staples, Inc. SPLS has officially announced that Sycamore Partners, a private equity firm, will acquire its business. The deal is valued at $6.9 billion. Following the news, the company’s shares jumped 8.4% yesterday. In fact, the company’s shares have gained 10.9% in the past one month, outperforming the Zacks categorized Retail-Miscellaneous/Diversified industry’s decline of 2.5%.

Per the agreement, Staples shareholder will get $10.25 per share in cash.. Staples further stated that the deal has received green signal from the company’s Board of Directors. The deal which is expected to be sealed by December is subject to financial conditions.

Analysts pointed out that demand for office products (paper-based) has been decreasing due to technological advancements. Smartphones, tablets and laptops are fast emerging as viable substitutes for paper-based office supplies. Moreover, there has been persistent weakness in the office products sector. Further, stiff competition from online retailers such as, Inc. AMZN has been playing spoilsport for the company.

The effect of these factors was clearly visible in the sales performance which has been declining in the past few quarters. In first-quarter fiscal 2017, the top line declined 4.9% year over year. We noted that the company’s sales have declined 2.9%, 4.3%, 3.7% and 3.1% in the fourth, third, second and first quarters of fiscal 2016, respectively. The story remains similar for the bottom line that plunged 11% in first-quarter fiscal 2017, following declines of 4% and 3% in the fourth and third quarters of fiscal 2016.

However, Sycamore which is a master player in retail investments is very optimistic about the sector. Sycamore has earlier invested in department store firm, Belk Inc., Dollar Express and teen apparel retailer Hot Topic.

Earlier, U.S. District Judge Emmet Sullivan has ruled out the merger of Staples and Office Depot, Inc. ODP. According to the FTC, the deal would have lowered competition nationwide, resulting in price hikes and fewer options for large corporate houses that usually make bulk purchases. However, if the merger had materialized, the two companies would have created a retail chain with approximately $36 billion in annual revenues and thousands of stores.

Staples currently carries a Zacks Rank #3 (Hold).

A Stock to Consider

A better-ranked stock in the retail space is Big 5 Sporting Goods Corporation BGFV sporting a Zacks Rank #1 (Strong Buy). The stock has a long-term earnings growth rate of 9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

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