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A brand new breed of activist takes a board seat at Workplace Depot’s dad or mum firm


An employee works in an Office Depot Inc.

Susana Gonzalez | Bloomberg | Getty Images

Company: ODP Corp. (ODP)

ODP Corp. is a provider of business services, products and solutions for digital workplace technology for small and medium-sized businesses. The company has a fully integrated business-to-business sales platform with around 1,300 branches and an online presence. The company, formerly Office Depot, has three different segments: the Business Solutions Division (the largest component of the integrated B2B platform), the Retail Division, and the CompuCom Division, which ODP acquired for $ 1 billion in 2017. It operates under the brands Office Depot, OfficeMax, CompuCom and Grand & Toy.

Market value: $ 2.2 billion ($ 42.69 per share)

Activist: HG Vora

Percentage ownership: 9.49%

Average cost: $ 21.00

Activist Comment: HG Vora is not an activist investor but has proven to be an active value investor when needed. It is an event-driven, value-driven fund founded by Parag Vora in 2009. HG Vora is part of a new generation of activism – deep value investors who have experience of being active when needed, but not using that as their main strategy. Activists like these are often less threatening and respected among boards of directors and institutional investors.

What’s happening:

On January 25, 2021, HG Vora and the company signed a cooperation agreement, according to which the company increased the board of directors to ten directors and Marcus B. Dunlop, partner at HG Vora, appointed director to the board of directors with a term of office until the 2021 annual meeting Vora agreed to comply with certain customary voting and standstill regulations.

Behind the scenes:

Staples has been trying to acquire ODP for six years, but its $ 6.3 billion offer for 2016 did not receive regulatory approvals. Since then, Staples has been acquired by Sycamore Partners, who made an offer on January 11, 2020 to purchase ODP for $ 40 per share in cash. Sycamore’s plan was to buy ODP and sell the business solutions and CompuCom divisions, keeping only retail.

On January 19, 2021, ODP issued a letter in which the board of directors unanimously concluded that there is a more compelling path for the company to take than the potential transaction described in the proposed acquisition. The company will pursue its strategy of expanding its B2B strategy and other growth initiatives and continuing its process of selling CompuCom. However, the company said it was open to combining retail and consumer e-commerce activities with Staples on mutually acceptable terms.

The company did not immediately reject Staples’ proposal, instead proposing a joint venture designed to maximize synergies and efficiency while reducing the regulatory risk of a retail-only transaction.

Amid it all, a representative from HG Vora added to the board. This is a critical time for the company and the Board of Directors should be advised to add a representative of the shareholders to the Board to assist in this important analysis and decision.

HG Vora’s SEC filings indicate that it was a passive investor until January 19, when it was believed that the company would be discussed about joining the board. The fact that an agreement was reached on Jan. 25 shows that this was very amicable and not just something HG Vora wanted, but something the company thought was important.

Having an institutional shareholder representative on a board of directors at such a time is like having free access to an investment bank that doesn’t care about fees, just shareholder value. The HG Vora representative will be able to return all of ODP’s potential strategic opportunities to HG Vora, where they can model everything and help the board find the best strategic option for creating shareholder value.

HG Vora clearly sees another value from here, otherwise they would have walked away from this investment with a return of 126% in less than six months. Having a seat on the board at this point not only shows that they are confident there is more value, but that they are long-term investors focused on shareholder value.

Finally, note that Starboard had an activist campaign at Office Depot in 2012 and two of the directors (Joseph S. Vassalluzzo and Cynthia A. Jamison) who put Starboard on the board are still on the board, with Vassalluzzo serving as the non-executive CEO.

Ken Squire is the founder and president of 13D Monitor, an institutional shareholder activism research service, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist assets.

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