Why Office-Supply Shares Surged

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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.

What: Shares of office-supply retailers surged today on a report that OfficeMax and Office Depot are in merger talks.

So what: Citing unidentified sources close to the matter, The Wall Street Journal said an announcement may come as early as this week, triggering plenty of excitement over the cost synergies a deal could create. Both OfficeMax and Office Depot have struggled in recent years to compete with industry king Staples , as well as increasing online threats from the likes of Amazon.com ,but a merger could at least save roughly $500 million in expenses, according to analyst estimates.


Now what: I'd be cautious about buying into this buyout buzz. Back in 1997, the Federal Trade Commission blocked Staples' attempt to gobble up Office Depot on anti-competitive concerns. So an OfficeMax-Office Depot combo is far from a sure thing even if the rumors are true. While the FTC is more likely to allow a deal between the No. 2 and No. 3 players than if top dog Staples was involved, the risk/reward trade-off at this point -- particularly after today's huge surge -- doesn't seem all that attractive.

The article Why Office-Supply Shares Surged originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and owns shares of Amazon.com and Staples. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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