Why Staples and Office Depot Are Soaring Today

By Markets Fool.com

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

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What: Shares of office supply chains Staples and Office Depot jumped Tuesday on renewed rumors of an impending merger of the two companies. By noon, Staples had risen 9% while Office Depot had soared nearly 18%.

So what: Starboard Value, an activist investment firm, acquired a major stake in Staples last December while at the same time increasing its stake in Office Depot. Starboard owns 6% of Staples and 10% of Office Depot, and the firm has been actively pushing for a merger. Previously, Starboard pushed for change at Darden Restaurants, managing to oust the CEO and win all of the seats on the board of directors.

Now what: After Office Depot merged with Office Max in late 2013, Staples and Office Depot are the only major office supply companies left standing. Both companies have been reducing their respective store counts, and Starboard estimates that $2 billion in cost savings could potentially be reaped from a merger.

The merger remains only a rumor at this point, and neither company has confirmed anything. Staples had previously attempted to acquire Office Depot in 1997, but that idea was shot down by regulators. There's more competition today, from big-box stores to online retailers, but the commercial delivery business still could draw regulatory scrutiny. A merger is by no means a guarantee at this point, but the market is clearly betting on it.

The article Why Staples and Office Depot Are Soaring Today originally appeared on Fool.com.

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Timothy Green has no position in any stocks mentioned. The Motley Fool owns shares of Staples. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.